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Does Government R&D Policy Mainly Benefit Scientists and Engineers?

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  • Austan Goolsbee

Abstract

Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending. This paper shows that there is a serious problem with such government efforts to increase inventive activity. The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers. Because of the higher wages, conventional estimates of the effectiveness of R&D policy may be 30 to 50% too high. The results also imply that by altering the wages of scientists and engineers even for firms not receiving federal support, government funding directly crowds out private inventive activity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6532.

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Date of creation: Apr 1998
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Publication status: published as American Economic Review, Vol. 88, no. 2 (May 1998): 298-302.
Handle: RePEc:nbr:nberwo:6532

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  1. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  2. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  3. Jaewoo Ryoo & Sherwin Rosen, 1992. "The Market for Engineers," University of Chicago - George G. Stigler Center for Study of Economy and State 83, Chicago - Center for Study of Economy and State.
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