Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms

Sabrina T Howell and J. David Brown

The Review of Financial Studies, 2023, vol. 36, issue 5, 1889-1929

Abstract: This paper examines how employee earnings respond to a one-time cash flow shock in the form of a government R&D grant. In a regression discontinuity design, we find that the grant immediately increases average annual employee-level earnings by 2.9$\%$. This benefit accrues only to incumbent employees and rises with job tenure. The grant also affects firm growth, but the initial wage patterns do not appear to reflect growth or productivity. Instead, the evidence supports implicit equity financing within the firm, where employees initially accept lower wages from financially constrained firms and earn more when the firm has ability to pay.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: G32 G35 J31 J41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms (2020)
Working Paper: Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms (2020)
Working Paper: Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms (2020)
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