Do firms that create intellectual property also create and sustain more good jobs? Evidence for UK firms, 2000-2006

Abstract

A common assumption in innovation policy circles is that creative and inventive firms will help to sustain employment and wages in high wage countries. The view is that firms in high cost production locations that do not innovate are faced with loss of market share from import competition, so jobs move to producers in developing countries with lower labour costs. Domestic firms are encouraged to innovate, and to obtain intellectual property assets to protect their innovations, so that they can sustain local employment and pay high wages. Policies to subsidise R&D and to encourage intellectual property protection are partly justified on these grounds. Nevertheless the available evidence concerning the employment and wage benefits of such activity is rather sparse. In this paper we first survey some existing literature on innovation and jobs. We outline arguments for using both patents and trade marks as indicators of innovation. We then construct a large sample of UK firms observed from 2000 to 2006, matching records of patents and trade marks to company data. We begin by estimating a cross section employment growth equation for 2003-2006 to discover if there is any impact of stocks of trade marks acquired in 2000-2003. We then explore in more detail the impact of recent trade mark and patenting activity on the level of employment and the average rate of pay in these firms. We do this using the data as a six year panel, estimating both an employment function and a relative earnings equation at the firm level. Our aim throughout is to identify and calibrate the assumed positive effects that underpin modern innovation policy.