Globalisation, inequality, feeble productivity growth, earnings stagnation, the falling labour share of national income — the most important features of economic life. And one institution binds them together: the firm.
Firms are at the centre of our economy: they make the things we buy, set prices, invent new things and provide jobs. They also differ widely in their size, their productivity, their innovativeness, and the wages and conditions they offer. This event will address a number of key questions regarding firms and inequality.
We want to understand how important market frictions are in stifling the transmission of ideas from one firm to another. We use comprehensive data on patent applications from the European Patent Office and a multiple spells duration model to provide estimates that suggest that they are substantial.
We provide evidence on how changes in the use of high-skilled workers (inventors) in a foreign location affect a firm's domestic use of the same type of worker. We exploit rich data that provide variation in the location of inventors within multinational firms across industries and countries to control for confounding firm–time and industry factors. We find that a 10% increase in the use of foreign inventors leads to a 1.9% increase in the use of domestic inventors. Our results suggest that foreign and domestic inventors are complementary in the production of knowledge.
Productivity is currently the most talked about topic in town, and for good reason. At the end of 2014 UK productivity remained below its pre-recession level and 16% below where it would have been had the pre-recession trend continued. Looking forward, it is only productivity growth that is likely to spur increases in real wage growth and living standards. Alongside the upcoming budget, George Osborne will set out a plan for how to boost productivity.
This Observation aims to provide some context for current discussions by setting out what the most recent data shows about the trajectory of productivity across different sectors of the economy.
Multinational firms outsourcing or offshoring their operations to developing countries is a problem as old as globalisation. This column looks at the effect on high-skilled labour in the home country. It presents evidence that, on average, when firms start employing high-skilled workers offshore, they also increase the number of this type of worker employed at home.