Productivity, Innovation, and Entrepreneurship

Productivity, Innovation, and Entrepreneurship

March 24, 2017
Nicholas Bloom of Stanford University and Josh Lerner of Harvard University, Organizer

Miguel Antón, IESE Business School; Florian Ederer, Yale University; Mireia Gine, the University of Pennsylvania; and Martin C. Schmalz, the University of Michigan

Innovation: The Bright Side of Common Ownership

A firm's incentives to innovate deteriorate when other firms benefit from its R&D activities without incurring a cost. Antón, Ederer, Giné, and Schmalz show under which conditions common ownership of firms can mitigate this impediment to corporate innovation, and test the model's empirical predictions. Common ownership increases R&D when technological spillovers, as measured by firms' distance in technology space, are large relative to product market spillovers, as measured the firms' distance in the product market. Otherwise, costly innovation leads to more business stealing which is detrimental for common owners. The researchers' results help inform the debate about the welfare effects of increased levels of common ownership concentration of U.S. firms.

Lorenz Kueng, Northwestern University and NBER; Nicholas Li, the University of Toronto; and Mu-Jeung Yang, the University of Washington

The Impact of Emerging Market Competition on Innovation and Business Strategy: Evidence from Canada (NBER Working Paper No. 22840)

How do firms in high-income countries adjust to emerging market competition? Kueng, Li, and Yang estimate how a representative panel of Canadian firms adjusts innovation activities, business strategies, and exit in response to large increases in Chinese imports between 1999 and 2005. On average, process innovation declines more strongly than product innovation. In addition, initially more differentiated firms that survive the increase in competition have better performance ex-post, but are ex-ante more likely to exit. Differentiation therefore does not ensure insulation against competitive shocks but instead increases risk.

Daron Acemoglu, MIT and NBER, and Pascual Restrepo, MIT

Robots and Jobs: Evidence from US Labor Markets

As robots and other computer-assisted technologies take over tasks previously performed by labor, there is increasing concern about the future of jobs and wages. Acemoglu and Restrepo analyze the effect of the increase in industrial robot usage between 1990 and 2007 on U.S. local labor markets. Using a model in which robots compete against human labor in the production of different tasks, the researchers show that robots may reduce employment and wages, and that the local labor market effects of robots can be estimated by regressing the change in employment and wages on the exposure to robots in each local labor market — defined from the national penetration of robots into each industry and the local distribution of employment across industries. Using this approach, the researchers estimate large and robust negative effects of robots on employment and wages across commuting zones. They bolster this evidence by showing that the commuting zones most exposed to robots in the post-1990 era do not exhibit any differential trends before 1990. The impact of robots is distinct from the impact of imports from China and Mexico, the decline of routine jobs, offshoring, other types of IT capital, and the total capital stock (in fact, exposure to robots is only weakly correlated with these other variables). According to the researchers' estimates, one more robot per thousand workers reduces the employment to population ratio by about 0.18–0.34 percentage points and wages by 0.25–0.5 percent.

Bilal Zia, the World Bank

Pathways to Profits: Identifying Separate Channels of Small Firm Growth through Business Training

In this paper, Zia identifies separate pathways to profits among small businesses in South Africa exposed to either marketing or finance training in a randomized control study. The marketing group achieves greater profits by adopting a growth focus of higher sales, greater investments in stocks, and higher employment. The finance group achieves the same through an efficiency focus of lower costs. Both groups show significantly higher adoption of business practices related to their training. Marketing skills are significantly more beneficial to firm owners who ex-ante have less exposure to different business contexts. Conversely, finance skills are more beneficial to more established entrepreneurs.

Dan R. Andrews, Chiara Criscuolo, and Peter N. Gal, OECD

The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy

In this paper, Andrews, Criscuolo, and Gal aim to bring the debate on the global productivity slowdown—which has largely been conducted from a macroeconomic perspective—to a more micro-level. The researchers show that a particularly striking feature of the productivity slowdown is not so much a lower productivity growth at the global frontier, but rather rising labour productivity at the global frontier coupled with an increasing labour productivity divergence between the global frontier and laggard (non-frontier) firms. This productivity divergence remains after controlling for differences in capital deepening and markup behaviour, suggesting that divergence in measured multi-factor productivity (MFP) may in fact reflect technological divergence in a broad sense. This divergence could plausibly reflect the potential for structural changes in the global economy—namely digitalisation, globalisation, and the rising importance of tacit knowledge—to fuel rapid productivity gains at the global frontier. Yet, aggregate MFP performance was significantly weaker in industries where MFP divergence was more pronounced, suggesting that the divergence observed is not solely driven by frontier firms pushing the boundary outward. The researchers contend that increasing MFP divergence—and the global productivity slowdown more generally—could reflect a slowdown in the diffusion process. This could be a reflection of increasing costs for laggard firms of moving from an economy based on production to one based on ideas. But it could also be symptomatic of rising entry barriers and a decline in the contestability of markets. The researchers find the rise in MFP divergence to be much more extreme in sectors where pro-competitive product market reforms were least extensive, suggesting that policy weaknesses may be stifling diffusion in OECD economies.

Oriana Bandiera, London School of Economics; Stephen Eliot Hansen, Universitat Pompeu Fabra; Andrea Prat, Columbia University; and Raffaella Sadun, Harvard University and NBER

CEO Behavior and Firm Performance

>Bandiera, Hansen, Prat, and Sadun measure the behavior of 1,114 CEOs in Brazil, France, Germany, India, the U.K. and the U.S. using a new methodology that combines (i) data on every activity the CEOs undertake during one work week and (ii) a machine learning algorithm that projects these data onto scalar CEO behavior indices. Low values of the index are associated with plant visits, and one-on-one meetings with production or suppliers, while high values correlate with meetings with high-level C-suite executives, and several functions together, both from inside and outside the firm. The researchers use these data to study the correlation between CEO behavior and firm performance within the framework of a firm-CEO assignment model. They show results consistent with significant firm-CEO assignment frictions, which appear to be more severe in lower-income regions. The productivity loss generated by inefficient assignment is equal to 13% of the productivity gap between high- and low-income countries in the sample.

Achyuta Adhvaryu, the University of Michigan and NBER; Namrata Kala, Harvard University; and Anant Nyshadham, Boston College

The Skills to Pay the Bills: Returns to On-the-job Soft Skills Training

The willingness of firms to provide general training to workers depends on the productivity gains from training and the likelihood that workers are retained. Adhvaryu, Kala, and Nyshadham evaluate the impacts of training in soft skills development on the workplace outcomes of female garment workers in Bengaluru, India. The researchers implemented a lottery determining access to the program by randomizing lines and then workers within lines to treatment, which allows them to capture treatment effects and program spillovers. They find that despite a high overall turnover rate, more treated workers are retained during the training period; this difference disappears after training is complete. Treated workers are 12 percent more productive than controls. Within-team spillovers in productivity and task complexity are substantial. Survey outcomes support the hypothesis that the program increased the stock of soft skills, which raised workers' marginal products. Wages increase by 0.5 percent after program completion. Pairing their point estimates with program costs, the researchers calculate that the net return to on-the-job soft skills training for garment workers is large—about 250 percent nine months after program completion.