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Federal R&D and Employment Growth

Federal R&D and Employment Growth. The George Washington University, April 15 , 2009 Albert N. Link Department of Economics University of North Carolina at Greensboro. Introductory Remarks. Thanks to: Nick Vonortas. Introductory Remarks. Thanks to: Nick Vonortas

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Federal R&D and Employment Growth

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  1. Federal R&D and Employment Growth The George Washington University, April 15, 2009 Albert N. Link Department of Economics University of North Carolina at Greensboro

  2. .

  3. Introductory Remarks • Thanks to: • Nick Vonortas

  4. Introductory Remarks • Thanks to: • Nick Vonortas • Charles Wessner – National Research Council

  5. Introductory Remarks • Thanks to: • Nick Vonortas • Charles Wessner – National Research Council • Lewis Carroll

  6. . • The “verdict” (the “evidence” follows) Using data from DoD and NIH Phase II SBIR awards, we find that the SBIR program had a measurable employment impact

  7. Why Is the Topic Important? • Public accountability – GPRA, 1993 • Current economic slowdown • American Recovery and Reinvestment Act of 2009 • Purpose: to: “ … create jobs and promote economic recovery” • $22 billion to S&T • Reauthorization of the SBIR program

  8. Related Studies • Three critical studies in the 1980s showing positive correlation between productivity and federal $R&D • Case studies of federally-funded technologies • Evaluation studies of social benefits from federal $R&D-sponsored projects and from standards

  9. Why Re-Investigate the Topic? • “Little” systematic evidence of employment growth from federal $R&D • NRC database on SBIR activity at the project level rich source of information • Phase II SBIR projects funded between 1992 and 2001 • survey administered in 2005

  10. SBIR Program - 1 • “All I know is what I read in the papers” —Will Rogers

  11. SBIR Program - 2 • “All I know is what I read in the papers” —Will Rogers • Set aside program • Small Business Innovation Development Act of 1982 • “stimulate technological innovation” • Phase I and Phase II projects • 2.5% (currently) of extramural funding budget

  12. Possible Methodology • Matched-pairs study • SBIR companies very unique • Relevant criteria to define the match

  13. A Bit About the Companies

  14. Here’s What We Did - 1 • Know from the survey data: • Time from the founding of the company until applying for the Phase II award • Number of employees when applying for the Phase II award • Pre-award company characteristics • Academic background of founder • Number of previous Phase II awards • Geographic region

  15. Here’s What We Did - 2 • We formulated a mathematical growth model that reduced to an equation suitable to estimate, across companies, the current (2005) level of employment using only pre-award information

  16. Economists Love Their Models Johann Heinrich von Thünen,  1780-1850, in The Isolated State (vol 2,1850) developed an equation for the marginal product of labor, or natural wage (w = √ap),  to be carved into his tombstone.

  17. Here’s What We Did - 3 • We estimated an employment growth equation using pre-award information and controlling for the probability of response to the survey • DoD: 5650  3026  891  755 • NIH: 2497  1677  495  391 • Used the estimated results to predict for each company its 2005 level of employment absent its Phase II award

  18. Summary of What We Did • Know from the NRC survey each company’s current (2005) level of employment • We estimated each company’s predicted (2005) level of employment based on pre-award information • Difference between actual and predicted employment is what we define as employment growth

  19. Restated • Employment growth = (actual 2005 level of company employment from survey data) – (level of employment in 2005 predicted from pre-Phase II award information)

  20. Findings - 1

  21. Multiplier within a Company • $1 Mil SBIR  • Some new employees  • Other sources of research funds (e.g., venture capital, own funds)  • Some more new employees  • Commercialized product, process, or service  • Even more new employees

  22. Findings - 2

  23. Hold on ……….

  24. Findings - 3

  25. Correlates with Employment Growth • Companies with greater employment growth are: • larger companies, measured in terms of revenues • companies that had invested own funds in the research project

  26. Be Careful About Generalizing from these Results • Will funding 1 more DoD (NIH) Phase II project increase employment by 32 (65)? • Will raising project limits or increasing the number of Phase II projects funded be more effective in increasing employment? • Is direct support more effective than indirect support to small companies to increase employment?

  27. Spillover Gap

  28. Conclusions - 1 “One of the greatest pieces of economic wisdom is to know what you do not know. “– John Kenneth Galbraith

  29. Conclusions - 2 • Findings are preliminary and should be interpreted with caution but still the ‘evidence’ does support the ‘verdict’ that the SBIR program has had a measurable employment impact

  30. Thank You .

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