Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/202162
Authors: 
Amoroso, Sara
Year of Publication: 
2015
Series/Report no.: 
IPTS Working Papers on Corporate R&D and Innovation 10/2015
Abstract: 
A basic assumption in the economic literature is the one of diminishing marginal returns to labour. However, theoretical studies on knowledge and labour specialization assume that an increase in the knowledge investment embodied in the human capital of workers raises the marginal product of labour. In this paper, we propose a structural approach to test the hypothesis of non-diminishing returns to labour for a panel data set of R&D investing companies, and we explore how the marginal returns to labour vary with their level of knowledge capital (R&D) intensity. Our econometric analysis provides a number of results. First, we find that more knowledge intensive firms have non-diminishing returns to labour, while less knowledge intensive companies exhibit diminishing returns. Second, independently from the knowledge capital intensity, returns to labour increase with size. Relatively smaller firms have diminishing returns, while larger companies have non-diminishing to increasing returns to labour. However, we show that more knowledge intensive firms can attain the threshold of non-diminishing returns faster than their counterparts.
Subjects: 
size
specialization
profitability
profit function
JEL: 
J24
L10
L25
O30
Document Type: 
Working Paper
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