Intellectual property regimes and wage inequality

Sourav Bhattacharya, Pavel Chakraborty and Chirantan Chatterjee

Journal of Development Economics, 2022, vol. 154, issue C

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.

Keywords: Intellectual property regimes; Wage inequality; High-tech and low-tech firms; Managerial compensation; “Snail-shape”; Patent race (search for similar items in EconPapers)
JEL-codes: D21 D23 L23 O1 O34 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:154:y:2022:i:c:s0304387821000833

DOI: 10.1016/j.jdeveco.2021.102709

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