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Defensive Hiring and Creative Destruction

Author

Listed:
  • Jesus Fernandez-Villaverde
  • Yang Yu
  • Francesco Zanetti

Abstract

Defensive hiring of researchers by incumbent firms with monopsony power reduces creative destruction. This mechanism helps explain the simultaneous rise in R&D spending and decline in TFP growth in the US economy over recent decades. We develop a simple model highlighting the critical role of the inelastic supply of research labor in enabling this effect. Empirical evidence confirms that the research labor supply in the US is indeed inelastic and supports other model predictions: incumbent R&D spending is negatively correlated with creative destruction and sectoral TFP growth while extending incumbents' lifespan. All these effects are amplified when ideas are harder to find. An extended version of the model quantifies these mechanisms' implications for productivity, innovation, and policy.

Suggested Citation

  • Jesus Fernandez-Villaverde & Yang Yu & Francesco Zanetti, 2025. "Defensive Hiring and Creative Destruction," CAMA Working Papers 2025-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2025-15
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-03/15_2025_Fernandez-Villaverde_Yu_Zanetti.pdf
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    Cited by:

    1. Francesco Zanetti & Federico Mandelman & Yang Yu, 2026. "Immigration, Labor Shortages, and Labor Market Dynamics," CIGS Working Paper Series 26-004E, The Canon Institute for Global Studies.
    2. Andrea Guccione & Pau Roldan-Blanco, 2026. "Economic Growth when Knowledge is Concentrated," Working Papers 1562, Barcelona School of Economics.

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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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