William R. Kerr

37 Results

 

High-Tech Immigrant Workers Don’t Cost US Jobs

Hiring skilled immigrants by United States high-tech firms not only doesn't push out existing workers, it creates job opportunities for all, argues William Kerr. Open for comment; 11 Comments posted.

Heterogeneous Technology Diffusion and Ricardian Trade Patterns

The principle of Ricardian technology differences as a source of trade is well established in the theory of international economics. This theory argues that countries can focus on producing products in which they have comparative productivity advantages; subsequent exchanges afford higher standards of living in all countries than are possible without trade. While a key theory, economists have struggled to quantify the empirical importance of comparative technology advantages and their link to trade. This is especially difficult given the high degree to which technology states of countries and industries can be correlated with other traits about countries that could also promote trade. This study contributes to scholarship on Ricardian advantages through the development of a substantially larger dataset than previously utilized and the study of changes in technology/trade over time. Even more important, the study provides a tool for isolating relative technology growth in exporting countries across industries. The foundation for this identification is the modeling of Ricardian advantages through differences across countries and their industries in terms of their access to the U.S. technology frontier. The differences arise due to historical migration patterns (e.g., Chinese migration to San Francisco versus Hispanic migration to Miami). The study analyzes how technologies flow differentially to countries and industries based upon the historical settlement patterns of migrants from countries and the spatial development of new technologies in the United States (i.e., which technologies flourished in San Francisco versus Miami). The study finds that these differential technology flows are powerful enough to influence world trade patterns, and in the process, they provide new identification to an age-old theory. Read More

Skilled Immigration and the Employment Structures of US Firms

The immigration of skilled workers is of deep importance to the United States, particularly in occupations closely linked to innovation and technology commercialization. Appropriate policies and admissions levels for skilled workers remain bitterly debated in the popular press. The authors analyze how the hiring of skilled immigrants affects the employment structures of US firms. This focus on the firm is both rare and important, since economists typically study immigration through the conceptual framework of shifts in the supply of workers to a labor market; yet substantial portions of the US immigration framework have been designed to allow American firms to choose the immigrants that they want to hire. Young workers account for a large portion of such skilled immigrants; for example, 90 percent of H-1B workers are under the age of 40. Given this context, the authors look specifically at the role of young skilled immigrants within more than 300 large employers and major patenting firms over the 1995-2008 period. The evidence suggests that increased employment of young skilled immigrants 1) raises the overall employment of skilled workers in the firm, 2) increases the immigrant share of these workers, and 3) reduces the older worker share of skilled employees. The latter effect is evident even among natives only. Overall, these results provide a multifaceted view of how young skilled immigration shapes the employment structures of US firms. There are significant implications for the competitiveness of American firms, the job opportunities of natives and immigrants employed by these firms, the larger national innovative capacity of the United States, and much beyond. Read More

U.S. High-Skilled Immigration, Innovation, and Entrepreneurship: Empirical Approaches and Evidence

In the 2008 Current Population Survey, immigrants represented 16 percent of the United States workforce with a bachelor's education. Moreover, immigrants accounted for 29 percent of the growth in this workforce during the 1995-2008 period. Exceeding these strong overall contributions, the role of immigrants within science, technology, engineering, and mathematics (STEM) fields is even more pronounced. Even so, the importance of the global migration of STEM talent has been under-studied. In this paper, which focuses exclusively on the United States' experience, the author reviews academic work regarding the effects of global migration on innovation and entrepreneurship. Findings show that while some aspects of the phenomenon are well understood, such as the quantity and quality of immigrants, scholars still have very little insight on others, such as return migration. Overall, immigration has clearly been essential for the United States' leadership in innovation and entrepreneurship. There is also evidence of positive impacts of high-skilled diasporas for home countries, although the ledger that can be measured in the United States remains incomplete. Read More

Built for Global Competition from the Start

Building a startup as a global business requires managers with skills and strategy much different from their predecessors of even a generation ago, says William R. Kerr. Closed for comment; 2 Comments posted.

Clusters of Entrepreneurship and Innovation

For many decades, the common wisdom among local officials pursuing employment growth for their areas was to attract a large firm to relocate. This "smokestack chasing" led to many regional governments bidding against each other and providing substantial incentives to large plants making their location choice decisions. The success of entrepreneurial clusters in recent decades, however, has challenged this wisdom, and now many policy makers state that they want their regions "to be the next Silicon Valley." This has led to extensive efforts to seed local entrepreneurship, with today's politicians routinely announcing the launch of an entrepreneurial cluster in a hot industry, such as biotechnology, nanotechnology, or advanced manufacturing. In this paper, the authors explore the rationale for and efficacy of policies to promote local entrepreneurship and innovation and reflect on recent initiatives in this domain. Read More

Innovation, Reallocation, and Growth

Industrial policies that subsidize (often large) incumbent firms, either permanently or when they face distress, are pervasive. Despite the ubiquity of such policies, their effects are poorly understood. They may encourage incumbents to undertake greater investments, increase productivity, and protect employment. But they may also reduce economic growth by discouraging innovation by both entrants and incumbents and slowing down reallocation. The reallocation implications of such policies may be particularly important because the existing literature attributes as much 80 percent of productivity growth in the United States to reallocation when less efficient firms exit and more efficient firms enter. In this paper, the authors build a model of firm innovation and growth that enables an examination of the forces jointly driving innovation, productivity growth, and reallocation. This model fits the key moments from microdata reasonably well, and is in line with the range of micro estimates in the literature. Read More

Diasporas and Outsourcing: Evidence from oDesk and India

Diaspora-based exchanges have been important for centuries, but the online world reduces many of the frictions these networks solved. How do the Internet and diaspora networks connect? This study investigated the importance of Indian diaspora connections on the oDesk platforms for outsourcing. oDesk is the world's largest online labor market, processing $30 million per month in contracts as of May 2012. This research finds strong evidence that diasporas still matter and influence economic exchanges even when many frictions are minimized. In fact, the case study suggests more often than not that diaspora use increases as familiarity with the platform increases. This suggests a longer-term complementarity between diaspora networks and online tools that may aid the persistence of these networks. At the same time, the oDesk evidence also makes clear that the role of diaspora networks should not be overstated. While they contributed to India's success on oDesk, diaspora connections were clearly not a driving force in India becoming the top destination for oDesk contracts. Read More

Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines

Does entrepreneurship cause urban growth? Economists and policymakers often argue yes, but it is remarkable how little is known about what lies behind this relationship. This paper investigates the connection more closely using a link between historical mineral and coal deposits and modern entrepreneurship observed in US cities today. Because the process of bringing ores out of the earth is a capital-intensive operation that often benefits from large-scale operations, cities with a historical abundance of nearby mineral and coal mines developed industrial structures with systematically larger establishments and less entrepreneurship. These early industrial traits persisted long after the initial conditions faded through intergenerational transmissions, path dependency, and similar. Using this variation, the study finds the strong connection between a city's initial entrepreneurship and subsequent economic growth is still observed after removing the most worrisome endogeneity. This connection works primarily through lower employment growth of startups in cities that are closer to mines. Read More

Is India’s Manufacturing Sector Moving Away from Cities?

One of the biggest challenges in development is urbanization. Within developing countries, nearly two billion people are expected to move from rural regions into cities in the next two decades. This paper closely examines the movement of economic activity in Indian manufacturing between urban and rural areas. The authors find that while the organized sector is becoming less urbanized, the unorganized sector is becoming more urbanized. This process has been most closely linked to greater urbanization changes in districts with high education levels; a second role is often evident for public infrastructure as well. On the whole, these urbanization changes have modestly improved the urban-rural allocation of industries within India's districts. Read More

A Few Firms Have Outsized Influence in D.C.

New research by Harvard Business School Associate Professor William R. Kerr suggests the number of companies affecting government policy through lobbying may be smaller—but more powerful—than previously thought. Open for comment; 4 Comments posted.

Income Inequality and Social Preferences for Redistribution and Compensation Differentials

Market-based factors have substantially increased inequality in the United States over the last three decades. If the inequality caused by these mechanisms reduces social preferences regarding distributive equality, the inequality can become amplified and entrenched. The potential thus exists for the formation of a "vicious cycle" where increases in disparity weaken concern for wage equality or redistribution. This weakened concern affords greater future compensation differentials, a shrinking of the welfare state, and so on that further increase inequality and again shift preferences. Alternatively, changes in social preferences can counteract inequality increases. William Kerr characterizes how changes in inequality affect social attitudes towards government-led redistribution and compensation differentials. The results of this study provide mixed evidence regarding the vicious-cycle hypothesis. Kerr's findings suggest that social preferences regarding inequality adjust to desire more redistribution while allowing greater labor market inequality. Read More

Local Industrial Structures and Female Entrepreneurship in India

Despite its recent economic advances, India's gender balance for entrepreneurship remains among the lowest in the world. Improving this balance is an important step for India's achievement of greater economic growth and gender equality. This paper uses detailed micro-data on the unorganized manufacturing and services sectors of India in 2000-2005 to identify and quantify the importance of existing female business networks for promoting subsequent entrepreneurship among women at the district-industry-year level. Read More

The Dynamics of Firm Lobbying

Lobbying is a primary avenue through which firms attempt to change policy in the United States, with total expenditures outnumbering campaign contributions by a factor of nine. While lobbying by businesses is a frequently debated issue, there has been little systematic empirical evidence on these behaviors at the firm level. This paper is one of the first to begin to fill this gap. To do so, the researchers constructed an empirical model of lobbying behavior of publicly traded, US-headquartered firms between 1998 and 2006. They also looked in depth at a specific policy shift that has been the subject of significant public debate: the dramatic decline in the limit on H-1B visas that occurred in 2004. Findings show that the decline in the limit on H-1Bs did not induce new firms to lobby that were not previously lobbying on other issues. The decline did, however, significantly shift lobbying resources towards high-skilled immigration issues amongst firms that had lobbied previously for other issues. Moreover, the manner in which this shift occurs among firms already lobbying indicates little constraint on adjustments across issues important for firms. Read More

Spatial Determinants of Entrepreneurship in India

In South Asia, which regional traits encourage local entrepreneurship? While multiple studies have considered this question in advanced economies, especially for the manufacturing sector, there has been very little empirical evidence for developing countries like India. While India has historically had low entrepreneurship rates, this weakness is improving and will be an important stepping stone to further development. In this paper, the authors explore the spatial determinants of local entrepreneurship in India for both manufacturing and services. At the district level, their strongest evidence points to the roles that local education levels and physical infrastructure quality play in promoting entry. They also find evidence that strict labor regulations discourage formal sector entry, and better household banking environments encourage entry in the unorganized sector. The paper then evaluates how incumbent industrial structures of cities shape the type of entrants that emerge in local areas. Startups are more frequent for a city in industries that share common labor needs or have customer-supplier relationships with the city's incumbent businesses. This is among the first studies to quantify the spatial determinants of entrepreneurship in India. Moreover, it moves beyond manufacturing to consider services, which are very important for India's economic growth. Read More

Ethnic Innovation and US Multinational Firm Activity

What effects do immigrant scientists and engineers have on the global activities of the firms that employ them? To what extent do these high-skilled immigrants help US multinationals capitalize on foreign opportunities? Professors Foley and Kerr analyze key data concerning US patents, direct investment abroad, research and development, and the ownership structure of firms. They show that immigration enhances the competitiveness of US multinationals. Taken together, the results have implications for immigration policies. Many debates about immigration focus on the potentially deleterious impact of low wage immigrants on the domestic workforce. However, Foley and Kerr point out that immigrants who are skilled enough to engage in innovative activity generate benefits for firms that are seeking to do business abroad. Read More

Immigrant Innovators: Job Stealers or Job Creators?

The H-1B visa program, which enables US employers to hire highly skilled foreign workers for three years, is "a lightning rod for a very heated debate," says Harvard Business School professor William Kerr. His latest research addresses the question of whether the program is good for innovation, and whether it impacts jobs for Americans. Open for comment; 36 Comments posted.

Agglomerative Forces and Cluster Shapes

HBS professor William R. Kerr and doctoral candidate Scott Duke Kominers develop a theoretical model for analyzing the forces that drive agglomeration, or industrial clustering. It is rare that researchers systematically observe the forces like technology sharing, customer/supplier interactions, or labor pooling that lead to firm clustering. Instead, the data only portray the final location decisions that firms make (for example, firms that utilize one type of technology are clustered over 50 miles, while those using another technology are clustered over 100 miles). The researchers' model identifies how these observable traits can be used to infer properties of the underlying clustering forces. Read More

Growth Through Heterogeneous Innovations

Economists have long recognized that innovation is central to economic growth and development. But as a profession, economics is just beginning to model the many types of innovations that exist and the amazing heterogeneity in the firms that conduct research and development--from General Electric to Silicon Valley start-ups. This paper provides theoretical and empirical evidence surrounding how firm size influences the types of R&D undertaken, with particular focus on choices to pursue exploration R&D (capturing new product lines) versus exploitation R&D (refining current product lines internally). From the choices made by individual firms and new entrepreneurs, the model then builds to consider aggregate economic growth. Research was conducted by Ufuk Akcigit of the University of Pennsylvania and William R. Kerr of Harvard Business School. Read More

From Russia with Love: The Impact of Relocated Firms on Incumbent Survival

The relocation of the machine tool industry from the Soviet-occupied zone of postwar Germany to western regions is a unique laboratory for studying the impact of industrial structures on incumbent survival. Typically, geographic agglomerations of similar firms offer benefits to each member firm by reducing the transportation costs for material goods, specialized workers, and industry knowledge among the firms. Of course, tight geographic concentration comes with countervailing costs as firms compete for local inputs. In this paper, HBS professor William R. Kerr and coauthors study the impact of increased local concentration on incumbent firms by considering postwar Germany, when the fear of expropriation (or worse) in the wake of World War II prompted many machine tool firm owners to flee to western Germany, where they reestablished their firms. Read More

The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis

What difference do angel investors make for the success and growth of new ventures? William R. Kerr and Josh Lerner of HBS and Antoinette Schoar of MIT provide fresh evidence to address this crucial question in entrepreneurial finance, quantifying the positive impact that angel investors make to the companies they fund. Angel investors as research subjects have received much less attention than venture capitalists, even though some estimates suggest that these investors are as significant a force for high-potential start-up investments as venture capitalists, and are even more significant as investors elsewhere. This study demonstrates the importance of angel investments to the success and survival of entrepreneurial firms. It also offers an empirical foothold for analyzing many other important questions in entrepreneurial finance. Read More

Labor Regulations and European Private Equity

Recent theoretical models predict that countries with stricter labor policies will specialize in less innovative activities due to the higher worker turnover frequently associated with rapidly changing sectors. HBS visiting scholar Ant Bozkaya and HBS professor William R. Kerr examine how differences in labor regulations across European countries influence the development of private equity markets, comprised of venture capital and buy-out investors. In so doing, the researchers provide the first empirical evidence for this theoretical prediction at the industry level in the entrepreneurial finance literature. They also make a methodological contribution by demonstrating how jointly modeling the different policies for providing worker insurance delivers more consistent results than their individual relationships would indicate by themselves. Read More

Clusters of Entrepreneurship

Economic growth is highly correlated with an abundance of small, entrepreneurial firms. This relationship is even stronger looking across industries within cities, and has been taken as evidence for competition spurring technological progress, product cycles where growth is faster at earlier stages, and the importance of entrepreneurship for area success. Any of these interpretations is possible, however, and the only thing that we can be sure of is that entrepreneurial clusters exist in some areas but not in others. This paper first documents systematically some basic facts about average establishment size and new employment growth through entrepreneurship, then analyzes entry and industrial structures at the region and the city levels using the Longitudinal Business Database. Read More

Breakthrough Inventions and Migrating Clusters of Innovation

In just a short period of time the spatial location of invention can shift substantially. The San Francisco Bay Area grew from 5 percent of U.S. domestic patents in 1975-1984 to over 12 percent in 1995-2004, for example, while the share for New York City declined from 12 percent to 7 percent. Smaller cities like Austin, Texas, and Boise, Idaho, seem to have become clusters of innovation overnight. Despite the prevalence of these movements, we know very little about what drives spatial adjustments in U.S. invention, the speed at which these reallocations occur, and their economic consequences. In this paper, HBS professor William R. Kerr investigates whether breakthrough inventions draw subsequent research efforts for a technology to a local area. Evidence strongly supports the conclusion that centers of breakthrough innovations experience subsequent growth in innovation relative to their peer locations. Read More

Financing Constraints and Entrepreneurship

Financing constraints are one of the biggest concerns impacting potential entrepreneurs around the world. Given the important role that entrepreneurship is believed to play in the process of economic growth, alleviating financing constraints for would-be entrepreneurs is also an important goal for policymakers worldwide. In this paper HBS professors William R. Kerr and Ramana Nanda review two major streams of research examining the relevance of financing constraints for entrepreneurship. They then introduce a framework that provides a unified perspective on these research streams, thereby highlighting some important areas for future research and policy analysis in entrepreneurial finance. Read More

Banking Deregulations, Financing Constraints and Firm Entry Size

How do financing constraints on new start-ups affect the initial size of these new firms? Since bank debt comprises the majority of U.S. firm borrowings, new ventures are especially sensitive to local bank conditions due to their limited options for external finance. Liberalization in the banking sector can thus have important effects on entrepreneurship in product markets. As HBS professors William Kerr and Ramana Nanda explain, the 1970s through the mid-1990s was a period of significant liberalization in the ability of banks to establish branches and to expand across state borders, either through new branches or through acquisitions. Using a database of annual employment data for every U.S. establishment from 1976 onward, Kerr and Nanda examine how U.S. branch banking deregulations impacted the entry size of new start-ups in the non-financial sector. This paper is closely related to their prior work examining how the deregulations impacted the rates of startup entry and exit in the non-financial sector. Read More

The Supply Side of Innovation: H-1B Visa Reforms and US Ethnic Invention

The H-1B visa program governs most admissions of temporary immigrants into the U.S. for employment in patenting-related fields. This program has become a point of significant controversy in the public debate over immigration, with proponents and detractors at odds over how important H-1B admission levels are for U.S. technology advancement and whether native U.S. workers are being displaced by immigrants. In this study, Kerr and Lincoln quantify the impact of changes in H-1B admission levels on the pace and character of U.S. invention over the 1995-2006 period. Read More

Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?

Some places, like Silicon Valley, seem almost magically entrepreneurial with a new start-up on every street corner. Other areas, like declining cities of the Rust Belt, appear equally starved of whatever local attributes make entrepreneurship more likely. Many academics, policymakers, and business leaders stress the importance of local conditions for explaining spatial differences in entrepreneurship and economic development. This paper uses data from the U.S. Census Bureau to characterize these entry relationships more precisely within the manufacturing sector. Read More

Economic Impacts of Immigration: A Survey

International migration is a mighty force globally. According to United Nations statistics, over 175 million people, accounting for 3 percent of the world's population, live permanently outside their countries of birth. This paper surveys the economic impacts of immigration for host countries, mostly emphasizing the recent experiences of Northern Europe and Scandinavia. The paper documents how migrant flows to some countries within this region are now of similar magnitude to the United States. The authors discuss the impact of immigration on national labor markets in terms of both immigrant assimilation and possible native displacement. Their survey concludes with the impact of immigration on the public finances of host countries, which is of particular policy importance within Europe today given ageing populations and fiscal imbalances. Read More

The Agglomeration of U.S. Ethnic Inventors

The higher concentration of immigrants in certain cities and occupations has long been noted. There has been very little theoretical or empirical work to date, however, on the particular agglomeration of U.S. immigrant scientists and engineers. This scarcity is disappointing given the scale of these ethnic contributions and the importance of innovation to regional economic growth. William R. Kerr's study contributes to our empirical understanding of agglomeration and innovation by documenting patterns in the city-level agglomeration of ethnic inventors (e.g., Chinese, Indian) within the United States from 1975 through 2007. It is hoped that the empirical platform developed in this study provides a foothold for furthering such analyses. Read More

The Changing Face of American Innovation

Chinese and Indian scientists and engineers have made an unexpectedly large contribution to U.S. technology formation over the last 30 years, according to new research by HBS professor William R. Kerr. But that trend may be ebbing, with potentially harmful effects on future growth in American innovation. Read More

The Ethnic Composition of U.S. Inventors

The contributions of immigrants to U.S. technology formation are staggering. While the foreign-born account for just over 10 percent of the U.S. working population, they represent 25 percent of the U.S. science and engineering workforce and nearly 50 percent of those with doctorates. Even looking within the Ph.D. level, ethnic researchers make an exceptional contribution to science as measured by Nobel Prizes, election to the National Academy of Sciences, patent citation counts, and so on. The magnitude of these ethnic contributions raises many research and policy questions: 4 examples are debates regarding the appropriate quota for H1-B temporary visas, the possible crowding out of native students from the science and engineering fields, the brain-drain or brain-circulation effect on sending countries, and the future prospects for U.S. technology leadership. This paper describes a new approach for quantifying the ethnic composition of U.S. inventors with previously unavailable detail. Read More

What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns

Most industries exhibit some degree of geographic concentration. Although many theories attempt to explain this agglomeration, empirical tests of these theories are difficult as they all predict similar outcomes within individual industries. This study considers how industries coagglomerate—that is, which industry pairs locate together—to form a tractable analysis. The authors specifically study the relative importance of proximity to suppliers and customers, to firms using similar labor, and the sharing of ideas for explaining agglomeration. Read More

Do Employment Protections Reduce Productivity? Evidence from U.S. States

Business leaders and policymakers often claim labor market rigidities reduce productivity and competitiveness by altering production choices from their unconstrained best. These theories are tested using the adoption of employment protection regulations by U.S. state courts over the last three decades. Consistent evidence is found following the introduction of the employment regulations that 1) firm production choices are altered, 2) firm employment turnover declines, and 3) firm productivity declines. Entrepreneurship rates also decline in the states after the court decisions. The interpretation of the results, however, is somewhat clouded by very large employment growth that follows the regulations too. Read More

The Immigrant Technologist: Studying Technology Transfer with China

Immigrants account for almost half of Ph.D.-level scientists and engineers in the U.S., and are prime drivers of technology development. Increasingly, however, Chinese technologists and entrepreneurs are returning home rather than staying in the U.S. to pursue opportunities. Professor William Kerr discusses the phenomena of technology transfer and implications for U.S.-based businesses and policymakers. From New Business. Read More

Banking Deregulation, Financing Constraints and Entrepreneurship

What effect does an increase in banking competition have on the entry of start-ups? In particular, does an increase in banking competition have a differential effect on the entry of start-ups relative to the opening of new establishments by existing firms? The U.S. branch banking deregulations provide a useful laboratory for studying how banking competition affects small businesses. Prior to 1970, all but twelve states had stringent restrictions on the ability of banks to open new branches or to acquire the branches of other banks within the state; beginning in the 1970s and until 1994, all but two states removed these restrictions. In this research, Kerr and Nanda studied the entry of newly incorporated businesses between 1976 and 1999 using detailed data collected by the U.S. Census Bureau. Their findings matter for understanding how reforms that affect the financing environment may improve the real economy through the reallocation of resources in the non-financial sectors. Read More

The Industry R&D Survey: Patent Database Link Project

The development and diffusion of new innovations are central to economic growth, and understanding the firm-level underpinnings of technology progress is important to academics, policymakers, and business managers. While many researchers have examined (either separately or together) corporate research and development and technology diffusion, they run into two significant data constraints. William R. Kerr and Shihe Fu describe how they developed a new dataset for studying corporate innovation that encompasses three important existing datasets. This paper summarizes the Industry R&D Survey for researchers who want to study innovation through the Census Bureau's data. Read More