Working Paper: CEPR ID: DP9139
Authors: Neil Lee; Andrés Rodríguez-Pose
Abstract: Innovation is a crucial driver of urban and regional economic success. Innovative cities and regions tend to grow faster and have higher average wages. Little research, however, has considered the potential negative consequences: as a small body of innovators gain relative to others, innovation may lead to inequality. The evidence on this point is fragmented, based on cross-sectional evidence on skill premia rather than overall levels of inequality. This paper provides the first comparative evidence on the link between innovation and inequality in a continental perspective. Using micro data from population surveys for European regions and US Cities, the paper finds, after controlling for other potential factors, good evidence of a link between innovation and inequality in European regions, but only limited evidence of such a relationship in the United States. Less flexible labour markets and lower levels of migration seem to be at the root of the stronger association between innovation and income inequality in Europe than in the US.
Keywords: cities; European Union; inequality; innovation; regions; United States
JEL Codes: D31; O31; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Innovation (O35) | Income Inequality (D31) |
| Localized processes of skills-biased technological change (J24) | Income Inequality (D31) |
| Presence of affluent innovators (O35) | Income Inequality (D31) |
| Innovation in certain subsectors (Biotechnology and ICT) (O35) | Income Inequality (D31) |
| Greater mobility of labor in the US (J61) | Benefits from Innovation (O35) |