HEC Research Papers Series,
HEC Paris

Abstract: Firms in younger labor markets produce more innovation. We establish this using the local labor force projected based on historical births in each local labor market in the United States. Three successive levels of analysis – labor markets, firms, and inventors – allow us to separate out effects such as firm and inventor life cycles. We also find that corporate innovation activities reflect the innovative characteristics of younger labor forces, and firms in younger labor markets have higher valuations. Our results indicate that younger people as a group – inventors interacting with non-inventors – produce more innovation for firms through the labor supply channel rather than through a financing supply or consumer demand channel.

Keywords: Innovation; Demographics; Age structure; Labor markets; Firms; Inventors; Patents

JEL-codes: G31; J11; J13; J21; J24; O31; O32; O33; O34

83 pages, April 17, 2018

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