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  • IPR and Wage Inequality

    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Development Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Development Economics, 154, 2022 DOI: 10.1016/j.jdeveco.2021.102709

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Intellectual property regimes and wage inequality

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Article number102709
<mark>Journal publication date</mark>31/01/2022
<mark>Journal</mark>Journal of Development Economics
Volume154
Number of pages32
Publication StatusPublished
Early online date19/07/21
<mark>Original language</mark>English

Abstract

We use The Patents (Amendment) Act, 2002 in India as a quasi-natural experiment to identify the causal effect of higher incentives for innovation on a firm's compensation structure. We find that stronger intellectual property (IP) protection has a sharper impact on the demand for managerial skill for technologically advanced firms. Firms that were a-priori above the industry median (in terms of technology adoption, more so for R&D expenditure) witness a rise in the share of managerial compensation by 1.3%–8.3% higher than the rest. This effect is completely driven by firms between 5–8th decile with no effect on firms below the median or at the very top of the technological ladder. This observed “snail-shape” in the firms’ response to the IP shock is rationalized in a model where firms within an industry compete for patents by investing in managerial inputs. The observed increase in wage inequality can partly be attributed to a stronger performance pay for high-tech firms. Associatedly, high-tech firms invested more in technology adoption, started to produce more product varieties at higher quality, and filed for more product patent claims.  

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Development Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Development Economics, 154, 2022 DOI: 10.1016/j.jdeveco.2021.102709