Employment at Leading Companies is a Threat to Inventors and Innovation, Study Finds

Inventors who are adept at identifying new and potentially disruptive products are increasingly sought after by leading technology players who may wish to dissuade or even kill their ideas. 

These are the findings of a significant research study recently published by the University of Chicago, a leader in business economics.

“If the inventor works for [a new] entrant the innovation is implemented and the entrant displaces the incumbent firm,” states the intriguing paper written for the project. “Strategic considerations encourage the incumbent to hire the inventor, offering higher wages, and then not implement the inventor’s idea.”

760,000 Inventors

To test its prediction, the authors, Ufuk Akcigit, a Professor of Economics at the University of Chicago and Nathan Goldschlag, a Senior Economist at the Center for Economic Studies and a Senior Economist that the U.S. Census Bureau, combine a gigantic dataset covering the employment history of over 760,000 U.S. inventors with information on jobs from the Longitudinal Employer-Household Dynamics (LEHD) Program at the U.S. Census Bureau.

The findings: (i) Inventors are increasingly concentrated in large incumbents, less likely to work for young firms, and less likely to become entrepreneurs, and (ii) When an inventor is hired by an incumbent, compared to a young firm, their earnings increases by 12.6 percent and their innovative output declines by 6 to 11 percent.

“At big companies, people generate new ideas and get them in front of customers more slowly because of misaligned incentives, bureaucracy and institutional risk aversion”

Despite maintaining multi-billion dollar R&D operations, it is in the interest of big companies to retain some independent inventors. However, it is not always in their the inventors’ best long-term interests or society’s. Lucrative compensation packages are contributing to this trend. Why bet on your small company when you can get a guaranteed salary and benefits?

Where Have All the “Creative Talents” Gone? Employment Dynamics of US Inventors

Raiding the talent pool is not a new competitive tactic on the part of leading  companies in tech and other industries. Apple, Intel, Google and Adobe Systems were accused of unfair poaching of competitive talent in 2014.

“The class action lawsuit accused the four Silicon Valley companies of conspiring, between 2005 and 2009, to avoid hiring each other’s employees – a practice that the lawsuit says resulted in lower salaries for the affected individuals,” reported Knowledge at Wharton, a  journal published by the University of Pennsylvania’s Wharton School of Business.

“Incentives to be Cautious, Not Bold”

While higher costs and interest rates may have cooled the economy a bit, hiring pressure to fill some jobs in the tech sector remains intense. Invention talent is expensive and difficult to attract. Many believe that inventors are best served by remaining independent, building and capitalizing their own disruptive businesses, over which they have control.

It feels good to be sought after by an established business; it is even more satisfying to be compensated for your ideas with salary, stock options and other benefits. However, findings of the Chicago employment dynamics study indicate it is not necessarily wise for career-building, innovation or society.

“Big companies of every sort tend to give their employees incentives to be cautious rather than bold, to pursue overly complicated solutions rather than simple ones, and to seek promotions over serving the customer,” reports the Wall Street Journal in a revealing article that addresses the issues in “Where Have All the ‘Creative Talents’ Gone? Employment Dynamics of US Inventors.”

This wooing of inventors by big firms has a number of effects that are likely to be bad for innovation overall, say the study’s authors.

One such effect is that inventors have become less likely to become entrepreneurs in recent decades, and more likely to work for large companies, something the researchers were able to determine by examining census data. The proportion employed by the biggest companies grew to around 58% by the end of the 2010s from less than 50% in the year 2000.

“At big companies, people generate new ideas and get them in front of customers more slowly because of misaligned incentives, bureaucracy and institutional risk aversion,” says Noam Bardin, former chief executive of navigation app Waze, which was acquired by Google in 2013, and who is provided as an example in the WSJ article.

“The people who stay at a big company have to play the same games as everyone else, which means their innovative side doesn’t help them,” he adds. “Their political side is what gets them promoted.”


Image source: “Employment Dynamics of U.S. Inventors”

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