Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/215338
Authors: 
Howell, Sabrina T.
Brown, J. David
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 12942
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper examines how employee earnings at small firms respond to a cash flow shock in the form of a government R&D grant. We use ranking data on applicant firms, which we link to IRS W2 earnings and other U.S. Census Bureau datasets. In a regression discontinuity design, we find that the grant increases average earnings with a rent-sharing elasticity of 0.07 (0.21) at the employee (firm) level. The beneficiaries are incumbent employees who were present at the firm before the award. Among incumbent employees, the effect increases with worker tenure. The grant also leads to higher employment and revenue, but productivity growth cannot fully explain the immediate effect on earnings. Instead, the data and a grantee survey are consistent with a backloaded wage contract channel, in which employees of financially constrained firms initially accept relatively low wages and are paid more when cash is available.
Subjects: 
earnings inequality
rent sharing
R&D grants
regression discontinuity design
JEL: 
G32
G35
J31
J41
Document Type: 
Working Paper

Files in This Item:
File
Size
2.76 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.