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Human Capital Dispersion and Incentives to Innovate

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  • Maurizio Iacopetta

    (Observatoire Français des Conjonctures Économiques)

Abstract

Do policies that alter the allocation of human capital across individuals affect the innovation capacity of an economy? To answer this question, I extend Romer's (1990) growth model to allow for individual heterogeneity. I find that the value of an invention rises with equality. If skills and talents are evenly distributed, inventions are more widely adopted in production and users are willing to bid a higher price. Therefore, more equality is associated with a larger share of the population employed in the business of invention. However, inventors of an equal society are not as creative as those of an unequal one. As a result an inverted-U curve relating inequality and the innovation rate emerges, indicating that departures from extreme forms of equality or inequality are growth-enhancing. I discuss evidence that agrees with the main implications of the analysis, namely that the market size and the number of inventors are negatively affected by inequality. Finally, a calibration exercise suggests that in recent decades the U.S. has been in the ascending portion of the inequality-growth curve.

Suggested Citation

  • Maurizio Iacopetta, 2010. "Human Capital Dispersion and Incentives to Innovate," Documents de Travail de l'OFCE 2010-32, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1032
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    More about this item

    Keywords

    human capital; inequality; innovation;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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