Rachel Griffith, CBE FBA

Professor of Economics, University of Manchester
Research Director, Institute for Fiscal Studies


Innovation, Firms and Wage Inequality

Philippe Aghion, Antonin Bergeaud, Richard Blundell and Rachel Griffith

In this work uses matched employee-employer data from the UK that we augment with information on R&D expenditures, to analyze the relationship between innovativeness and average wage income across firms. We first show that more R&D intensive firms pay higher wages on average. Our second finding is that the premium to working in more R&D intensive firms seems to be higher for low-skilled workers than for high-skilled workers. As technology advances, demand for high skilled workers increases and they do better overall, but low skilled workers in innovative firms do better than other low-skilled workers. To account for these findings, we develop a simple model of the firm where the complementarity between high-skill occupation and low-skill occupation employees within the firm increases with the firm's degree of innovativeness. An additional prediction of the model, which is also confirmed by the empirical analysis, is that low-skilled workers stay longer in more innovative firms.

"Innovation, Firms and Wage Inequality", College de France, 16 June 2017