Working Paper: CEPR ID: DP18035
Authors: Ufuk Akcigit; Nathan Goldschlag
Abstract: How are inventors allocated in the US economy and does that allocation affect innovative capacity? To answer these questions, we first build a model of creative destruction where an inventor with a new idea has the possibility to work for an entrant or incumbent firm. If the inventor works for the entrant the innovation is implemented and the entrant displaces the incumbent firm. Strategic considerations encourage the incumbent to hire the inventor, offering higher wages, and then not implement the inventor’s idea. To test this prediction, we combine data on the employment history of over 760 thousand U.S. inventors with information on jobs from the Longitudinal Employer-Household Dynamics (LEHD) Program at the U.S. Census Bureau. Our results show that (i) inventors are increasingly concentrated in large incumbents, less likely to work for young firms, and less likely to become entrepreneurs, and (ii) when an inventor is hired by an incumbent, compared to a young firm, their earnings increases by 12.6 percent and their innovative output declines by 6 to 11 percent. We also show that these patterns are robust and not driven by life cycle effects or occupational composition effects.
Keywords: inventors; innovation; R&D; firms; dynamism; reallocation
JEL Codes: O3; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| employment concentration among incumbents (J68) | lower entrepreneurship (L26) |
| higher earnings in incumbents (J31) | lower innovative output (O39) |
| type of firm employing an inventor (incumbent vs. young firm) (L26) | earnings increase (J31) |
| type of firm employing an inventor (incumbent vs. young firm) (L26) | innovative output decrease (O39) |