DP1071 The Creation and Capture of Rents: Wages and Innovation in a Panel of UK Companies

Author(s): John Van Reenen
Publication Date: November 1994
Keyword(s): Innovation, Rent-Sharing, Wages
JEL(s): J51, O33
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1071

This paper examines the impact of technological innovation on wages using a panel of UK manufacturing firms. We utilize a headcount measure of major innovations between 1945-83 combined with share price and accounting information. Innovating firms are found to have higher average wages, but rival innovation tends to depress own wages. This appears consistent with a model where wages are partly determined by a sharing in the rents generated by innovation. In other words innovation may be a good instrument for proxies for rents such as profitability, quasi-rents or Tobin's q. Instrumental variable estimates of the elasticity between wages and quasi-rents are about 0.3, remarkably close to the recent findings of Abowd and Lemieux (1993).