Innovation and Top Income Inequality

Working Paper No. 21247 In this paper we use cross-state panel data to show a positive and significant correlation between various measures of innovativeness and top income inequality in the United States over the past decades. Two distinct instrumentation strategies suggest that this correlation (p...

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Bibliographic Details
Published in:NBER Working Paper Series 2015-06, p.21247
Main Authors: Aghion, Philippe, Akcigit, Ufuk, Bergeaud, Antonin, Blundell, Richard, Hémous, David
Format: Article
Language:English
Subjects:
Analysis
Economic theory
Growth models
Income inequality
Industrialized nations
Innovations
Lobbying
Per capita
Social conditions & trends
Social mobility
Studies
Upward mobility
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Summary:Working Paper No. 21247 In this paper we use cross-state panel data to show a positive and significant correlation between various measures of innovativeness and top income inequality in the United States over the past decades. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Yet, innovation does not appear to increase other measures of inequality which do not focus on top incomes. Next, we show that the positive effects of innovation on the top 1% income share are dampened in states with higher lobbying intensity. Finally, from cross-section regressions performed at the commuting zone (CZ) level, we find that: (i) innovativeness is positively correlated with upward social mobility; (ii) the positive correlation between innovativeness and social mobility, is driven mainly by entrant innovators and less so by incumbent innovators, and it is dampened in states with higher lobbying intensity. Overall, our findings vindicate the Schumpeterian view whereby the rise in top income shares is partly related to innovation-led growth, where innovation itself fosters social mobility at the top through creative destruction.
ISSN:0898-2937
DOI:10.3386/w21247