Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms / Sabrina T. Howell, J. David Brown.

Format:

Book

Author/Creator:

Howell, Sabrina T.

Contributor:

National Bureau of Economic Research.

Brown, J. David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26717.

NBER working paper series no. w26717

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

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.

Notes:

Print version record

January 2020.