IDEAS home Printed from https://ideas.repec.org/p/red/sed019/306.html
   My bibliography  Save this paper

Intellectual Property Rights, Professional Business Services and Earnings Inequality

Author

Listed:
  • Gorkem Bostanci

    (University of Pennsylvania)

Abstract

High skill labor demand is infrequent but firms cannot adjust perfectly due to several adjustment costs. Professional Business Services (PBS) sector help alleviate this problem by allowing high skill labor to move across firms, reducing idiosyncratic part of labor demand risk. This allows high skill talent to be utilized better and increases their productivity. This paper aims to show that improvements in intellectual property rights protection in the late 1970s alleviated concerns regarding sharing sensitive data with 3rd party firms, thus helped PBS to thrive in the following decades. Better utilization of high skill increased productivity in the economy. In addition, it decreased entrepreneurship by making working as a professional a viable alternative to opening a new firm as well as decreasing job-to-job transition rates since employees no longer needed to change employers in order to change workplaces. By increasing compensation for professional, it also contributed to the increased earnings inequality since 1980. Panel data analysis using time variation in U.S. states' adoption of the Uniform Trade Secrets Act shows a positive association between trade secret protection and PBS employment, where adoption is associated with 10% higher employment on average. We build a model that is able to match the qualitative characteristics of the evolution of earnings inequality in the U.S. since 1980, using this mechanism.

Suggested Citation

  • Gorkem Bostanci, 2019. "Intellectual Property Rights, Professional Business Services and Earnings Inequality," 2019 Meeting Papers 306, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:306
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_306.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    2. Henry S Farber & Daniel Herbst & Ilyana Kuziemko & Suresh Naidu, 2021. "Unions and Inequality over the Twentieth Century: New Evidence from Survey Data," The Quarterly Journal of Economics, Oxford University Press, vol. 136(3), pages 1325-1385.
    3. Deborah Goldschmidt & Johannes F. Schmieder, 2017. "The Rise of Domestic Outsourcing and the Evolution of the German Wage Structure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1165-1217.
    4. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    5. L. Rachel Ngai & Christopher A. Pissarides, 2007. "Structural Change in a Multisector Model of Growth," American Economic Review, American Economic Association, vol. 97(1), pages 429-443, March.
    6. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, June.
    7. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
    8. Erling Barth & Alex Bryson & James C. Davis & Richard Freeman, 2016. "It's Where You Work: Increases in the Dispersion of Earnings across Establishments and Individuals in the United States," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 67-97.
    9. Arundel, Anthony, 2001. "The relative effectiveness of patents and secrecy for appropriation," Research Policy, Elsevier, vol. 30(4), pages 611-624, April.
    10. Wesley M. Cohen & Richard R. Nelson & John P. Walsh, 2000. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)," NBER Working Papers 7552, National Bureau of Economic Research, Inc.
    11. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
    12. Matthew D. Henry & John L. Turner, 2006. "The Court of Appeals for the Federal Circuit’s Impact on Patent Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 35(1), pages 85-117, January.
    13. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 12, pages 1043-1171, Elsevier.
    14. Ryan Decker & John Haltiwanger & Ron Jarmin & Javier Miranda, 2014. "The Role of Entrepreneurship in US Job Creation and Economic Dynamism," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 3-24, Summer.
    15. Raven Molloy & Christopher L. Smith & Riccardo Trezzi & Abigail Wozniak, 2016. "Understanding Declining Fluidity in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 183-259.
    16. Horstmann, Ignatius & MacDonald, Glenn M & Slivinski, Alan, 1985. "Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 837-858, October.
    17. Donghoon Lee & Kenneth I. Wolpin, 2006. "Intersectoral Labor Mobility and the Growth of the Service Sector," Econometrica, Econometric Society, vol. 74(1), pages 1-46, January.
    18. Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1383-1435.
    19. I. P. L. Png, 2017. "Law and Innovation: Evidence from State Trade Secrets Laws," The Review of Economics and Statistics, MIT Press, vol. 99(1), pages 167-179, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sen, Ali, 2020. "Structural change within the services sector, Baumol's cost disease, and cross-country productivity differences," MPRA Paper 99614, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    2. Daniel Baumgarten & Gabriel Felbermayr & Sybille Lehwald, 2020. "Dissecting Between‐Plant and Within‐Plant Wage Dispersion: Evidence from Germany," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 59(1), pages 85-122, January.
    3. Winkler, Erwin, 2020. "Diverging paths: Labor reallocation, sorting, and wage inequality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224535, Verein für Socialpolitik / German Economic Association.
    4. Magda, Iga & Gromadzki, Jan & Moriconi, Simone, 2021. "Firms and wage inequality in Central and Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 499-552.
    5. Cortes, Guido Matias & Salvatori, Andrea, 2019. "Delving into the demand side: Changes in workplace specialization and job polarization," Labour Economics, Elsevier, vol. 57(C), pages 164-176.
    6. Bayer, Christian & Kuhn, Moritz, 2018. "Which Ladder to Climb? Decomposing Life Cycle Wage Dynamics," CEPR Discussion Papers 13158, C.E.P.R. Discussion Papers.
    7. Annaïg Morin, 2023. "Workplace heterogeneity and wage inequality in Denmark," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(1), pages 123-133, January.
    8. Claudine Gartenberg & Julie Wulf, 2020. "Competition and Pay Inequality Within and Between Firms," Management Science, INFORMS, vol. 66(12), pages 5925-5943, December.
    9. Martin Biewen & Matthias Seckler, 2019. "Unions, Internationalization, Tasks, Firms, and Worker Characteristics: A Detailed Decomposition Analysis of Rising Wage Inequality in Germany," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(4), pages 461-498, December.
    10. Schröpf, Benedikt, 2021. "The dynamics of wage dispersion between firms: The role of firm entry and exit," Discussion Papers 120, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    11. Freund, L. B., 2022. "Superstar Teams: The Micro Origins and Macro Implications of Coworker Complementarities," Janeway Institute Working Papers 2235, Faculty of Economics, University of Cambridge.
    12. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    13. Labanca, Claudio & Pozzoli, Dario, 2022. "Hours Constraints and Wage Differentials across Firms," IZA Discussion Papers 14992, Institute of Labor Economics (IZA).
    14. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.
    15. James Spletzer & Elizabeth Weber Handwerker, 2015. "The Role of Establishments and the Concentration of Occupations in Wage Inequality," Working Papers id:7427, eSocialSciences.
    16. L. Rachel Ngai & Barbara Petrongolo, 2017. "Gender Gaps and the Rise of the Service Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 1-44, October.
    17. Stefan Bender & Nicholas Bloom & David Card & John Van Reenen & Stefanie Wolter, 2018. "Management Practices, Workforce Selection, and Productivity," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 371-409.
    18. Nicholas Bloom & Scott Ohlmacher & Cristina Tello-Trillo & Melanie Wallskog, 2021. "Pay, Productivity and Management," Working Papers 21-31, Center for Economic Studies, U.S. Census Bureau.
    19. Michael Böhm & Daniel Metzger & Per Strömberg, 2022. "“Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium," ECONtribute Discussion Papers Series 147, University of Bonn and University of Cologne, Germany.
    20. Cortes, Guido Matias & Lerche, Adrian & Schönberg, Uta & Tschopp, Jeanne, 2023. "Technological Change, Firm Heterogeneity and Wage Inequality," IZA Discussion Papers 16070, Institute of Labor Economics (IZA).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed019:306. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.