How Research and Development Affect the Labor Industry

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This paper analyses the influence of research and development in determining the requirement of labour and the affect it has on the over all labour industry. It is known that in the short term increased investments and emphasis on R&D will result in the rise of plant and machinery usage while there will be decline in the demand for labour. This difference can be ascertained if there is a distinction made between the affect of the R&D efforts and the flow of investments.

There is significant difference between the affect of short term changes in the R&D on labour markets and demand on the one hand and the behaviour experienced in the sequential path on the other. An increase in the investments made in R&D will always be accompanied by an increased demand for labour per unit of investment. The widely held view in regard to the displacement of labour due to increased investments in R&D is not true and actually the demand for labour does increase under the circumstances. There is also a positive relationship between the rates of investment in R&D and its utilization.

This paper focuses on the query whether Research and Development has any impact on the labour industry. The simple and logical rationale that is inferred from the given activities implies that they are pursued with the intention of fostering innovative practices, which in turn benefit the industry and result in productivity and growth, which further leads to an increased demand for labour. Companies that engage in constant Research and Development have been found to experience a positive influence on the growth of employment. It is also known that the composition of skilled labour depends heavily on the location of R&D facilities of the company in question.

Where the R&D facilities are off shored, there is a shift in demand in favour of skilled labour in both manufacturing and services sectors. The R&D efforts of companies have been found to increase when they offshore such facilities, especially in the services sector.

Not much difference is found if R&D is relocated internationally in the manufacturing sector. R&D efforts are considered to be advanced operations and sometimes entail heavy costs when outsourced in other countries. With the increasing speed of technological changes happening through out the world, the resulting competition has considerably reduced the product life cycle and companies have started to reorganize their strategies for investment in R&D, thus having a direct impact on the practices of human resources management (Bernd Ebersberger, 2004).

An examination of the R&D patterns of different companies have revealed that off shoring has an important bearing on the functions of the company but does not largely influence the demand for skilled labour, especially amongst companies that have a high intensity of R&D. Most companies that outsource their functions generally concentrate their R&D facilities in the domestic market. This is also applicable to the service sectors in terms of services and material off shoring.

Companies with low intensity of R&D activities will tend to witness a contrasting pattern in terms of lesser demand for skilled labour, primarily because of the services that have been out sourced globally. Such companies are normally less inclined to invest heavily in R&D activities and are thus not much sophisticated and will off shore their productive activities for simpler developmental tasks, thus implying that they will not seek highly skilled workers. Most of the sophisticated R&D activities are undertaken by firms within their country of origin.

There are a number of channels by which a company’s R&D efforts can influence the decisions in regard to human resources management. Normally, labour skills and level of technology being used at any given time complement each other in the company’s production activities. Companies have to enhance the skills of their workers in keeping with the technological advancements and face traditional problems in the reluctance of the labour force to adopt the new practices.

Many a time firms have to attract additional workers with higher skill levels in order to meet the skill set required for the functions emanating from improved technologies. Existing workers also benefit from the newly acquired skills resulting from the R&D activities which in turn make the firm to evolve appropriate HR strategies so as to retain skilled and knowledgeable workers. The product strategy of the company directly impacts the choices made in regard to R&D as also the strategy for HR (Lazear, 1998).

After World War II the world has witnessed considerable increase in R&D activities as companies compete internationally to grab a larger share of the market for their products and services. There has been significant increase in the global trading in goods and services and especially since the 1980s, FDI (Foreign Direct Investment) has been growing very fast as compared to the quantum of global trade. Although most of the major multinational companies have moved their production and delivery functions to other countries, they have chosen to retain their R&D activities within the home country.

However this pattern too has started to change as more and more multinational companies rely on setting up R&D subsidiaries abroad in alliance with companies in developing economies that have become technologically advanced in recent years.

Such companies have also begun to have links with universities abroad in getting assistance for their R&D efforts. If such a pattern continues consistently, there will be a shift in the present association between the availability of scientists and the demand for research activities within the home country. It is evident from research and several business studies that the pattern in this regard is gradually shifting towards outsourcing by multinational companies of skilled engineers and scientists from developing countries that are rapidly gaining ground in R&D. This will add to the pattern of such companies outsourcing low wage labour from these countries.

Larger numbers of companies have begun to outsource R&D services in efforts to reduce costs and to take benefit of the high technology and expertise available in developing countries such as China and India. The possible advantages of outsourcing R&D services are undeniable in that firms can save substantially in terms of lower labour costs and can gainfully enter the fast growing global markets by placing such services in these countries. Nevertheless such practices do have their limitations such as language and culture obstacles, safeguarding of intellectual capital, regulatory and safety matters and the high attrition rate amongst employees in other countries.

Despite the given obstacles multinational companies continue to shift their R&D facilities overseas which have caused an intense debate to flare up in regard to such outsourcing at the cost of unemployment in home countries of multinationals. The argument given in this regard relates to the fact that the multinational companies after having succeeded in their home countries with the active contribution of the local labour force have no justification in shifting their services to foreign countries by rendering them jobless.

According to Fredrik Andersson et al, (2005) there is considerable difference in the effect that technological advancements have on labor practices. In companies which have a high level of R&D, HR practices will aim at hiring highly educated and skilled workers that have numerous means of entry and will give incentives on performance to workers with high productivity. It has also been found that companies with high investments in R&D will implement HR systems for lesser educated workers also and give them incentives for good performance. The workers in these companies will demonstrate higher productivity and a much lower accretion rate.

Companies with lesser investments in R&D will give priority to higher educated and skilled workers and will reward those who give higher productivity. Companies now have the tendency to treat less skilled workers also with dignity in offering them opportunities for career growth so that eventually they demonstrate higher levels productivity.

The relationship of R&D with worker practices can be examined from the perspective of wages and the impact of technology on the organization of the work. However not much is yet known about how the company’s R&D efforts influence its compensation practices. One explicit result of R&D on workers pertains to the augmentation of worker skills and knowledge in using new processes and technology (Krueger, 1993).

Technology can greatly influence the results of the company and the workers by way of the nature of work and the way it is executed. According to Hunter and Lafkas (1998) the influence of R&D on work is dependent on the systems of HR in which it was structured. Routine tasks have been significantly impacted by digital technology by way of automation and enabling workers to execute innovative tasks in both service and manufacturing firms.

The productivity of the worker is also influenced by the HR practices being used in a given firm and for a given level of technology. Usually the assets of a company at any given time are characterized by a high amount of technology specificity which makes it highly improbable to change at short notice. Hence markets that have a small product life entail larger efforts in R&D in comparison to markets that have a larger product life.

The introduction of a new technology consequent to R&D efforts influences the way a company deals with its workers. To implement the new techniques entails the requirement of experience in regard to the previous technologies as also the knowledge about the new methods to be introduced. Formal education in this regard is very time consuming especially for engineers as compared to normal workers. Therefore companies that have a small product life market will have higher spending on R&D and will require skilled staffs that are well acquainted with the new techniques as also those who are experienced with the previous technology.

Thus experience and new skill complement each other. Companies with low investments in R&D will be dependent on experienced workers since they will contribute in reducing cost, enhancing quality and standards and developing the quality of the products. The introduction of new technologies arising out of R&D efforts will entail that companies take appropriate decisions in regard to the creation of an optimum skill base amongst the work force, especially those working in technical functions. The company will have to decide in providing appropriate training and skill enhancement pertaining to the new techniques and in recruiting new workers to meet its production goals. It will also have to decide which workers to retain and which to fire in keeping with the technological requirements.

There is however limited evidence in regard to the association amongst innovation arising due to R&D activities and the labour market. Theoretically, there is ground to understand that an inflexible labour market will result if there are low levels of R&D efforts and initiatives in a given company. This is so because most firms are apprehensive that investments on R&D will create new products and procedures which will need adjustment in the composition of the work force. Hiring workers with the specific skills in carrying out the specific tasks related to new technologies becomes very difficult for firms, because such measures would also entail the firing of workers who may not be henceforth useful to the company. In avoiding such complications companies prefer not to invest in R&D on a very large scale.

References

Bernd Ebersberger, Labor Demand Effect of Public R&D Funding, 2004, Jul Kaisija-Utgivare.

Campbell R. Mcconnell, Stanley L. Brue, Macroeconomics: Principles, Problems, And Policies, 2008, Irwin/mcgraw-hill.

Fredrik Andersson, Clair Brown, Benjamin Campbell, Hyowook Chiang, The Effect of HRM Practices and R&D Investment on Worker Productivity, 2005. Web.

Hunter Larry and Lafkas, Opening the Box Information Technology, Work Practices, and Wages, 2003, Industrial and Labor Relations Review 56 no. 2.

Krueger Alan, How Computers Have Changed the Wage Structure, Evidence from Microdata 1984-1989, (1993) Quarterly Journal of Economics 108.

Lazear Edward. Personnel Economics for Managers, 1998, John Wiley & Sons.

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How Research and Development Affect the Labor Industry

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