Who Are the Inventors and Firms That Generate the Most Patents?
An increasing share of U.S. inventions are generated by large, well-established firms but the radical and impactful innovations more likely to come from younger firms are declining, according to research recently presented at a U.S. Census Bureau webinar.
The research, which linked patent inventors to the Census Bureau’s Longitudinal Employer-Household Dynamics (LEHD), showed that older firms tended to produce more but less impactful patents. Their growth may signal a slowdown in innovation.
In a series of research papers, my co-author Ufuk Akcigit, professor of economics at the University of Chicago, and I created a database to investigate the characteristics and employment dynamics of patent inventors.
LEHD provides the full employment history of nearly all U.S. workers, including their earnings employer and demographic characteristics. That allows the linking of patents to the individual inventors.
Applying administrative data to profile inventors is relatively new and sheds light on the pace of innovation and economic growth, who inventors are and where they’re concentrated.
Startups Create Disproportionately More Radical Innovations
Previous research found that younger firms tend to produce radical innovations with more far-reaching impacts, while older, larger firms tend to produce incremental innovations that build upon the firm’s existing products and technological capabilities.
Using our new database on the employment histories of inventors, we found that the share of inventors working for “incumbent firms” — at least 20 years old and with at least 1,000 employees — rose from about 49% in 2000 to 58% in 2015 (Figure 1).
During that period, the share of inventors at young firms had dropped from 15% to below 8%. Inventors working for these older and larger firms during this period had a slightly higher count of patent applications than those working at firms less than six years old (5% higher), but their inventions tended to be less impactful, receiving fewer citations (35% fewer).
Patents of inventors at incumbent firms tended to receive fewer citations — a measure of the quality of a patent. They also had fewer patent claims and a higher share of citations referencing the firm’s prior work, evidence of incremental rather than radical innovation.
Who Employs Inventors Matters
To measure the impact types of firms had on inventors and their inventions, we compared how the earnings and patent activity of “twin” inventors – one hired by an incumbent firm and one by a young firm – changed after they were hired.
Our analysis shows that inventors hired by incumbent firms tended to earn more — about a 12% bump in salary compared to those hired by young firms — but they produced about 4% fewer patents and their patents were lower quality because they were less impactful.
This suggests a potentially growing gap between the social benefit (quality of innovation) and personal benefit (earnings) of inventor activity.
Invention and Entrepreneurship
The inventor entrepreneurship rate fell by about 44% (0.3 percentage points) between 2000 and 2015 (Figure 2, Panel A). The decline is especially consequential because startups founded by inventors tend to be the same innovative startups that drive job creation.
Inventor-created firms are about 40% larger on average at birth than firms not created by inventors and they grow faster.