Do workers share in the returns to firm level R&D activity? Evidence from UK manufacturing firms

Feng, Yuchen ORCID: https://orcid.org/0009-0006-8295-3295, Kim, Jin Ho and Zhu, Kunyan 2026. Do workers share in the returns to firm level R&D activity? Evidence from UK manufacturing firms. The Productivity Institute Working Paper No.075 The Productivity Institute.

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Abstract

This study examines whether firms’ research and development (R&D) investment shapes labour market power by affecting the wedge between workers’ marginal revenue product and wages. Motivated by existing theories emphasising the role of worker outside options and turnover costs, we test whether R&D increases firms’ dependence on research intensive workers whose skills are both transferable and embedded in firm-specific production processes. Using matched administrative data from the UK Annual Respondents Database X (ARDx) and the Business Expenditure on Research and Development (BERD) survey, and applying production-function-based markdown estimators, we find that higher R&D investment is associated with lower labour markdowns. This relationship is driven by internally financed and in-house R&D, particularly experimental development, and is concentrated in firms that rely more heavily on high skilled research personnel and in settings where labour is less substitutable. The effect also strengthens over time, consistent with the accumulation of firm-specific knowledge and rising turnover costs. Overall, the results indicate that R&D investment weakens employer wage-setting power by increasing firms’ reliance on a small set of skilled workers whose knowledge is valuable and difficult to replace.

Item Type:	Working paper
Date Type:	Published Online
Status:	Published
Schools:	Schools > Business (Including Economics)
Publisher:	The Productivity Institute
Date of First Compliant Deposit:	1 July 2026
Date of Acceptance:	2026
Last Modified:	02 Jul 2026 12:49
URI:	https://orca.cardiff.ac.uk/id/eprint/187867

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