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

American Economic Review, Vol. 88, No. 2, May 1998

Posted: 28 Sep 1999  

Austan Goolsbee

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

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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.

JEL Classification: J44, O32, O33

Suggested Citation

Goolsbee, Austan, Does Government R&D Policy Mainly Benefit Scientists and Engineers?. American Economic Review, Vol. 88, No. 2, May 1998. Available at SSRN: https://ssrn.com/abstract=161435

Austan Goolsbee (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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