Does Government R&D Policy Mainly Benefit Scientists and Engineers?
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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Volume (Year): 88 (1998)
Issue (Month): 2 (May)
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References listed on IDEAS
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- James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ryoo, J. & Rosen, S., 1992.
"The Market for Engineers,"
University of Chicago - Economics Research Center
92-10, Chicago - Economics Research Center.
- 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.
- Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
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