Research

Labor market power and innovation

Working Paper, 2026

This paper examines how labor market power shapes how firms innovate and grow. We develop an endogenous growth model where firms optimize R&D spending to increase their future productivity while facing an upward-sloping labor supply curve, generating monopsony power. This creates two opposing distortions: (1) monopsonistic firms have stronger incentives to innovate and grow as they enjoy larger profits, but (2) firm growth increases (infra-)marginal labor costs by pushing firms up the labor supply curve, which reduces the returns to productivity-enhancing innovation. Theoretically, the first effect dominates for small firms, while the second is stronger for large firms. We test these predictions using rich firm-level data from the German manufacturing sector (1995–2018) to estimate firms’ productivity and labor market power. Empirically, we find that, conditional on size, Labor market power negatively correlates with R&D investment. Furthermore, small (large) firms in high-monopsony-power regions exhibit relatively high (low) R&D spending, compared to competitive labor markets, which aligns with our model’s predictions. When applying our model to the dato, we find that East Germany’s higher labor market power can explain 25% of the persistent productivity gap between East and West Germany and depresses overall GDP growth by 0.3% p.a.

Download here

The Aggregate Effects of Incumbent Firms Preventing Disruptive Innovation (JMP)

IWH Working Paper, 2024

This paper proposes to explain the productivity growth slowdown with firms consciously preventing disruptive innovation. I build an endogenous growth model with incremental and disruptive inventions and an inventor labor market where firms poach disruptive inventors to protect established technologies. I calibrate this model to the global patent landscape in 1990 and show that it predicts 52% of the decline of disruptive innovation until 2010. I confirm critical assumptions with an event study: Disruptions increase future research productivity, hurt incumbent inventors and raise the probability of future disruption. Without disruption, technology classes trend further towards incrementalism.

Download here

Matching on the Global Inventor Firm Labor Market

Working Paper, 2024

I analyze the matching of firms and inventors and the patent (citation) arrival rate of the resulting matches as a potential driver of slowing technology growth. I document a global trend towards increased assortative matching and declining inventor mobility to low productivity firms despite a largely constant patent invention function. To arrive at these results, I further develop empirical strategies used in the search and matching labor market literature to account for inventor teams and adapt these estimators to the pecularities of the PATSTAT patent data from 1974-2012, which I use as an employer-employee data set.

Download here

Trade shocks, labour markets and migration in the First Globalisation

The Economic Journal, 2024

This paper studies the economic and political effects of a large trade shock in agriculture—the grain invasion from the Americas—in Prussia during the first globalisation (1870-1913). We show that this shock led to a decline in the employment rate and overall income. However, we do not observe declining per capita income and political polarization, which we explain by a strong migration response. Our results suggest that the negative and persistent effects of trade shocks we see today are not a universal feature of globalisation, but depend on labour mobility. For our analysis, we digitize data from Prussian industrial and agricultural censuses on the county level and combine it with national trade data at the product level. We exploit the cross-regional variation in cultivated crops within Prussia and instrument with Italian and US trade data to isolate exogenous variation.

Recommended citation: Richard Bräuer, Felix Kersting, Trade shocks, labour markets and migration in the First Globalisation, The Economic Journal, 2024

Import competition and firm productivity: Evidence from German manufacturing

The World Economy, 2023

We study how different types of import competition affect firm productivity using firm-product data from German manufacturing (2000–2014). Competition from high-income countries causes affected domestic firms to increase their productivity and lower their prices. Oppositely, import competition from low-wage countries does not lead to firm productivity gains. Instead, domestic firms` sales and input usage decline. Our findings confirm the intuition of ladder models that the effect of competition depends on the “closeness” of competitors. They are in line with widespread X-inefficiencies throughout the economy, which firms reduce in response to competition from high-income countries.

Recommended citation: Braeuer, R., Mertens, M., Slavtchev, V. (2023). Import competition and firm productivity: Evidence from German manufacturing. The World Economy, 00, 00–21.

When Aggregation is Necessary, is it Necessarily Bad?

Working Paper, 2024

This paper explores microeconometric inference when the required variables and/or observations are stored in siloed datasts that cannot be combined. Proposals for estimation strategies are given for different cases, depending on the (in)ability to stack observations from multiple micro-level datasets or merge variables at the micro level across datasets. In all our proposed research strategies, some level of aggregation is necessary in order to stack micro-aggregated observations and/or merge the variables at a less granular level. We discuss examples of our methods using actual and simulated datasets, in light of the Grunfeld and Griliches (1960) paper, ’Is Aggregation Necessarily Bad’.

Battle of Ideologies: Firm Dynamics and Productivity in Planned Versus Market Economies

Working Paper, 2024

How important is creative destruction for economic growth? We address this question investigating economic productivity and firm dynamics in planned economies where the role of Schumpeterian forces is restricted by design. Us- ing novel industrial-firm-level data from Soviet Russia and East Germany in the late 1970s and 1980s, we compare these economies against their market counterparts such as the US and West Germany. We document little response to productivity changes, with few firms entering or exiting in the former com- munist countries. Through counterfactual simulations, we conclude that en- hancing responsiveness to productivity shocks and increasing the rates of en- try and exit to the US levels could have boosted growth by about 2.3% per year. This increase in growth would have covered the larger part of the eco- nomic gap between Eastern European and Western economies observed in the last decade before the fall of the Iron Curtain.