Essays in Labor Economics and Innovation

Innovation is the key to long-term economic growth, but we still know little about the determinants of innovation. The dissertation contains three essays on the causal relationship between labor supply and innovation. In the first chapter, I explore the relationship between highly-skilled inventors and firm invention. In the second chapter of my dissertation, I investigate the relationship between low-skilled mass migration and innovation. The third chapter studies the role of language in explaining the relationship between immigrants and innovation. The three papers elucidate how shocks to labor supply and human capital affect the innovation, productivity, and behavior of individuals and institutions. My work, therefore, helps identify new channels through which knowledge spillovers and competitive effects operate in the knowledge economy.

The first chapter investigates the impact of individual inventors on a firm’s innovation activity. I construct a unique data set that contains matched firm–inventor patent data, WWI military records, and characteristics of inventors in the census, allowing me to use the WWI draft as an exogenous shock to the labor supply of inventors. I find that the loss of inventors working with a firm decreases the firm’s inventions, but the loss of other inventors in the same geographical location does not affect the firm’s inventions. The loss of inventors outside the firm yet working in the same industry increases the firm’s inventions. This latter impact, however, varies considerably across firms; highly innovative firms experience an increase in innovation rates, while other firms experience a decrease in innovation rates. Industry-level data indicates that the loss of inventors attracts new inventors and firms to the industry. New ideas and generations are generated, given a vacancy in the space of ideas.

In the second chapter, joint with Kirk Doran, we analyze the relationship between immigration-induced labor supply shocks and innovation. Inventions often economize on labor, so economists have long posited that scarce labor should encourage invention. But the production of new inventions can require a division of labor and economies of scale that require plentiful labor instead. We provide the first causal evidence of mass immigration’s effect on invention, using variation induced by 1920s quotas, which ended history's largest international migration. Inventors in cities and industries exposed to fewer low-skilled immigrants applied for fewer patents. Industries with small establishment sizes attracted an ever-increasing share of invention. Labor scarcity affected both the rate and direction of inventive activity.

The third chapter studies the role of language in explaining how immigrant flows affect innovation. Economists have long noted that linguistically diverse immigrant flows might have a particularly large impact on innovation and creativity. On the other hand, if innovation depends on communication, and communication depends on a common language, then linguistically uniform immigration flows may have the largest impact on innovation. We find a U-shaped curve for the effect of linguistic diversity on the innovativeness of a society using features of the 1920s U.S. immigration quotas. Too much linguistic diversity creates a ``tower of babel' effect, in which people have unique things to talk about but no common language to say them in. Too little linguistic diversity creates a homogeneous population, in which people have a common language but nothing unique to share. The optimal amount of linguistic diversity for a creative society appears to be somewhere in between.