NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Matthew Freedman

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August 2006Reaching for the Stars: Who Pays for Talent in Innovative Industries?
with Fredrik Andersson, John C. Haltiwanger, Julia Lane, Kathryn L. Shaw: w12435
Innovation in the U.S. economy is about employing and rewarding highly talented workers to produce new products. Using unique longitudinal matched employer-employee data, this paper makes a key connection between talent and firms in markets with risky product innovations. We show that software firms that operate in product markets with highly skewed returns to innovation, or high variance payoffs, are more likely to attract and pay for star workers. Thus, firms in high variance product markets pay more up-front—in starting salaries—to attract and motivate star employees, because if these star workers produce home-run innovations, the firm’s winnings will be huge. However, we also find these same firms pay highly for loyalty: star workers that stay with a firm have much higher earnings...

Published: Fredrik Andersson & Matthew Freedman & John Haltiwanger & Julia Lane & Kathryn Shaw, 2009. "Reaching for the Stars: Who Pays for Talent in Innovative Industries?," Economic Journal, Royal Economic Society, vol. 119(538), pages F308-F332, 06. citation courtesy of

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