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Abstract: Does stronger intellectual property (IP) cause wage inequality? This question in a post Covid-19 & AI world where digitization and technology (along with patent waiver debates for vaccines) are all pervasive is of increasing global importance.
We use The Patents (Amendment) Act, 2002 in India as a quasi-natural experiment to throw light on this question with data from the Indian manufacturing sector. We identify the causal effect of higher incentives for innovation on firm compensation structure. We find that stronger IP in India has a sharper impact on the demand for managerial skill for technologically advanced manufacturing companies.
Firms that were apriori above the industry median (in terms of technology adoption & 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 above 5th decile with no effect on firms below the median or at the very top of the technological ladder. This observed snail-shape in firm response to the IP shock is consistent with predictions of 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 that witness deepening of manager-technology complementarity.
The results have implications for managers versus non-manager wage inequality within and across firms and potentially can also explain how firms may exercise market power in a strong IP world tomorrow. Quite a few LDC countries like Bangladesh are supposed to adopt post 2021, stronger IP per WTO provisions and our results have implications for distributional consequences of stronger IP in these country contexts. Our results also relate to the wages and taxes debate between the Silicon Valley high-tech employees versus the rest in the US labor market and in other technology intensive OECD economies.
Read the paper: Intellectual Property Regimes And Wage Inequality.pdf
