Indirect effects of R&D subsidies: labor mobility as a channel for knowledge spillovers

While research and development (R&D) spillovers have long been a central argument for the public support of private R&D activities, less is known about the existence and magnitude of innovation policy-induced spillovers. This paper presents a quasi-experimental analysis of the spillover effects of Eurostars R&D subsidies granted to small- and medium-sized firms (SMEs) from 2008 to 2019. We measure spillover effects by relying on employee mobility either between established firms or into employee entrepreneurship. We employ a combination of regression discontinuity (RD) design and difference-in-differences (DiD) methods for causal identification. We find no significant difference in the rate of spinoff creation between subsidized and nonsubsidized firms. However, our findings confirm that spinoffs of subsidized firms have higher rates of survival and employment growth than their counterparts. We also find that the SMEs that hire former employees of subsidized firms perform better in terms of employment, turnover, and value added than do similar firms that hire employees from nonsubsidized firms. We discuss the implications for innovation and labor market policies.