Reaching for the Stars: Who Pays for Talent in Innovative Industries?

Fredrik Andersson, Matthew Freedman, John Haltiwanger, Julia Lane and Kathryn Shaw

Economic Journal, 2009, vol. 119, issue 538, F308-F332

Abstract: Innovative firms need to hire and motivate highly talented workers. This article connects the potential returns to innovation to the structure of compensation for skilled employees. We show that the software firms that operate in software sectors with high potential upside gains to innovation pay more to 'star' workers than do other firms that operate in stable markets. Firms operating in product domains with highly skewed positive returns pay employees more in up-front starting salaries and offer higher compensation growth. The large estimated effects on earnings are robust to the inclusion of a wide range of controls for worker and firm characteristics. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2009
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Journal Article: Reaching for the Stars: Who Pays for Talent in Innovative Industries? (2009)
Working Paper: Reaching for the Stars: Who Pays for Talent in Innovative Industries? (2006)
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