Working Paper: NBER ID: w25245
Authors: Patrick Kline; Neviana Petkova; Heidi Williams; Owen Zidar
Abstract: This paper analyzes how patent-induced shocks to labor productivity propagate into worker compensation using a new linkage of US patent applications to US business and worker tax records. We infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected. To identify patents that are ex-ante valuable, we extrapolate the excess stock return estimates of Kogan et al. (2017) to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics. An initial allowance of an ex-ante valuable patent generates substantial increases in firm productivity and worker compensation. By contrast, initial allowances of lower ex-ante value patents yield no detectable effects on firm outcomes. Patent allowances lead firms to increase employment, but entry wages and workforce composition are insensitive to patent decisions. On average, workers capture roughly 30 cents of every dollar of patent-induced surplus in higher earnings. This share is roughly twice as high among workers present since the year of application. These earnings effects are concentrated among men and workers in the top half of the earnings distribution, and are paired with corresponding improvements in worker retention among these groups. We interpret these earnings responses as reflecting the capture of economic rents by senior workers, who are most costly for innovative firms to replace.
Keywords: patents; labor productivity; worker compensation; rent-sharing
JEL Codes: J01; O3; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Initial allowance of an ex-ante valuable patent (D45) | Substantial increases in firm productivity (O49) |
| Initial allowance of an ex-ante valuable patent (D45) | Increases in worker compensation (J39) |
| Patent allowances (D45) | Increased employment (J68) |
| Patent allowances (D45) | Higher earnings for workers (J31) |
| Higher wages (J39) | Increased retention of incumbent workers (J63) |
| Initial allowance of an ex-ante valuable patent (D45) | Economic rents captured by incumbent workers (D33) |
| Patent allowances (D45) | Earnings effects concentrated among male workers and those in the top half of the earnings distribution (J31) |
| Patent allowances (D45) | Insensitivity of entry wages and workforce composition (J79) |