Firms’ Changes in R&D Personnel After the Introduction of Universities of Applied Sciences in Switzerland

Abstract

This paper examines whether firms' increase R&D personnel as one important foundation for innovation activities in response to the introduction of Universities of Applied Sciences (UASs), i.e., tertiary vocational education institutions teaching and conducting applied research. Firms located near a new UAS campus experience an education-driven labor supply shock in the form of UAS graduates entering the local labor markets. We apply a difference-in-differences model, exploiting a quasi-natural experiment in the 1990s in Switzerland, the staggered openings of these UAS campuses. Using repeated cross-sectional data from the Swiss Earnings Structure Survey, we measure the employment of R&D personnel in treated firms: the percentage of R&D personnel relative to total employment and the percentage of total wages paid to them. The education-driven labor supply shock has positive effects on both the percentage of R&D personnel and the percentage of R&D wages. We find that these effects are driven by both very small firms (five to nine employees) and very large ones (5,000 or more). Our findings suggest that a tertiary education expansion can stimulate innovation activities in affected firms by increasing the resources devoted to R&D.