Firm Innovation, Growth, and Labor Dynamics
Paper Session
Monday, Jan. 5, 2026 10:15 AM - 12:15 PM (EST)
- Chair: Seula Kim, Pennsylvania State University
Technology-Driven Market Concentration through Idea Allocation
Abstract
Using a newly-created measure of technology novelty, this paper identifies periods with and without technology breakthroughs from the 1980s to the 2020s in the US. It is found that market concentration decreases at the advent of revolutionary technologies. We establish a theory addressing inventors' decisions to establish new firms or join incumbents of selected sizes, yielding two key predictions: (1) A higher share of inventors opt for new firms during periods of heightened technology novelty. (2). There is positive assortative matching between idea quality and firm size if inventors join incumbents. Both predictions align with empirical findings and collectively contribute to a reduction in market concentration when groundbreaking technologies occur. Quantitative analysis shows that the slowdown in technological breakthroughs predicts faster growth in average firm quality, but this effect is more than offset by slower growth in net firm entry. The slowdown also accounts for a large share of both the upward trend and the fluctuations in market concentration.Does Monopsony Matter for Innovation?
Abstract
This paper studies the impact of firms’ market power over inventors on U.S. innovation and economic growth. When firms have market power in labor markets, a situation typically referred to as monopsony, they can depress wages by hiring fewer workers. I show that monopsony in the market for inventors can slow down economic growth by depressing the aggregate demand for inventors and by allocating the employed inventors inefficiently. Misallocation occurs as larger firms depress their hiring of inventors disproportionally because their size makes them more effective at depressing wages. Motivated by this theoretical result, I estimate the firm-level elasticity of inventor employment with respect to their wages, or the inventor labor supply elasticity, using an instrumental variable strategy. My estimates suggest that firms face less than perfectly elastic supply and that this elasticity is lower for firms with an already large inventor workforce. Thus, firms appear to have monopsony power and it is stronger for larger employers. I use this evidence to calibrate a heterogeneous firms endogenous growth model with size-dependent monopsony power. The calibrated model suggests that monopsony power depresses the annual economic growth rate in the U.S. by 0.26 percentage points or 15% and, resultingly, welfare by 6%.Ideas and Firm Dynamics when It Takes Two to Tango
Abstract
Idea production is increasingly performed by teams of inventors rather than individuals. We study the two-way interaction between team idea production and firm dynamics, examining how firms shape teams and how the rise of teams impacts the size distribution of innovative firms and allocative efficiency. Using U.S. patent data from1976-2020, we find (i) the share of patents with multiple inventors (team patents) rose from 45% to 80%; (ii) around 90% of team patents are by inventors at the same firm; (iii) team characteristics vary with firm size, productivity, and age. Motivated by these facts, we develop a tractable framework microfounding inventor team formation within firms and show that team-based production can increase returns to scale in R&D labor, raising the optimal size of innovative firms. We find empirical support for this framework in patent data, with estimated returns to scale in inventor labor at the firm level increasing over time. Embedding this framework into a Hopenhayn-style model with knowledge spillovers we study the effect of the rise of teams on the optimal allocation of R&D workers to firms. We find that the rise of teams increases innovative output but also misallocation across firms.Discussant(s)
Salomé Baslandze
,
Federal Reserve Bank of Atlanta
Aakash Kalyani
,
Federal Reserve Bank of St. Louis
Fil Babalievsky
,
U.S. Census Bureau
Santiago Caicedo
,
Northeastern University
JEL Classifications
- O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy