Jacob Weber, UC Berkeley Graduate Student, UC Berkeley Economics
Abstract: R&D investment spending exhibits a delayed and hump-shaped response to shocks. We show that diminishing marginal returns in onboarding new R&D workers (“congestion”) makes R&D investment costly to adjust quickly. Congestion thus causes optimizing firms to slowly hire new workers when scaling up R&D production in response to good shocks and “hoard” these workers in response to bad shocks, providing a microfoundation for convex adjustment costs in R&D investment. Using novel, high-frequency productivity data on individual software developers from GitHub, we provide quantitative evidence on the existence of such congestion. Calibrated to this evidence, a sticky-wage New Keynesian model with investment-producing firms subject to congestion in onboarding and no other frictions yields hump-shaped responses of investment to monetary policy shocks.