R&D restructuring during the Great Recession and young firms

In this paper, I examine whether the Great Recession of the late 2000s (henceforth abbreviated as GR) had an effect on the organization of R&D in young versus older firms. Using a difference-in-difference approach and propensity score reweighting estimator, for a panel of more than 12,000 Spanish firms from 2005 to 2014, I compare young firms with older firms before and after the GR. I show that young firms implemented three key compositional changes in their R&D policies during the GR as compared to older firms: a) they reduced their R&D employment by firing medium and low-skilled R&D workers; b) they hired high-skilled R&D workers; and c) they increased their capital investments for R&D. These changes in R&D policies suggest that, during the GR, young firms substituted medium and low-skilled R&D workers by high-skilled workers and machines. These effects are mediated by the firms’ financial health.