Innovation and Top Income Inequality

60 Pages Posted: 16 Jun 2015

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Ufuk Akcigit

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

Antonin Bergeaud

Banque de France

Richard W. Blundell

UCL; IFS; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

David Hémous

University of Zürich

Multiple version iconThere are 3 versions of this paper

Date Written: June 2015

Abstract

In this paper we use cross-state panel data to show a positive and significant correlation between various measures of innovativeness and top income inequality in the United States over the past decades. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Yet, innovation does not appear to increase other measures of inequality which do not focus on top incomes. Next, we show that the positive effects of innovation on the top 1% income share are dampened in states with higher lobbying intensity. Finally, from cross-section regressions performed at the commuting zone (CZ) level, we find that: (i) innovativeness is positively correlated with upward social mobility; (ii) the positive correlation between innovativeness and social mobility, is driven mainly by entrant innovators and less so by incumbent innovators, and it is dampened in states with higher lobbying intensity. Overall, our findings vindicate the Schumpeterian view whereby the rise in top income shares is partly related to innovation-led growth, where innovation itself fosters social mobility at the top through creative destruction.

Keywords: citations, entrant, incumbents, inequality, innovation, patenting, social mobility, top income

JEL Classification: D63, J14, J15, O30, O31, O33, O34, O40, O43, O47

Suggested Citation

Aghion, Philippe and Akcigit, Ufuk and Bergeaud, Antonin and Blundell, Richard W. and Hemous, David, Innovation and Top Income Inequality (June 2015). CEPR Discussion Paper No. DP10659. Available at SSRN: https://ssrn.com/abstract=2619234

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ufuk Akcigit

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

HOME PAGE: http://www.ufukakcigit.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Center for Economic and Policy Research (CEPR) ( email )

London
United Kingdom

Antonin Bergeaud

Banque de France ( email )

Paris
France

Richard W. Blundell

UCL ( email )

Department of Economics
Gower Street
London, WC1E 6BT
United Kingdom
+44 20 7504 5863 (Phone)
+44 20 7916 2773 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctp39a/

IFS

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

HOME PAGE: http://www.ifs.org.uk

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Hemous

University of Zürich ( email )

Zürich
Switzerland

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