Alberto Marzucchi (SPRU University of Sussex)

“The effect of R&D on UK local labour markets and wage inequality”

Abstract: The seminar provides an account of effects of R&D on employment (and its composition) in local labour markets and on the impact of R&D investments on wage inequality. We distinguish the impact of R&D across areas with different initial shares of workers in routinised occupations. We find stronger effects in highly routinized areas, where low education employment is created in non tradeable services and a significant share of this is in self-employment. We qualify the effect of R&D on the nature of self-employment and find no evidence between self-employment driven opportunities and necessity. Zooming in, the seminar then focuses on the wage premium from firm R&D investment. We analyse the distribution of innovation wage premia across individuals, as depending on workers’ characteristics, including the degree of routinisation and the level of remuneration of occupations, wage distribution and gender. We exploit the China’s accession to the WTO as a source of exogenous variation to predict R&D expenditure of UK firms. Using matched employer-employee data on the manufacturing sector in the UK over 2009-2015, we find evidence of a positive innovation rent-sharing mechanism. Workers in less routinised and better paid occupations benefit from larger gains, while workers in highly routinised occupations gain less. We also find that, irrespectively of the position in the organisation and the occupational category, men gain more women from innovation premia. The results suggest that innovation does offer specific wage gains, but that R&D might further increase wage inequality and contribute to the gender pay gap.