TY  - JOUR
AU  - Goolsbee,Austan
TI  - Does Government R&D Policy Mainly Benefit Scientists and Engineers?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6532
PY  - 1998
Y2  - April 1998
UR  - http://www.nber.org/papers/w6532
L1  - http://www.nber.org/papers/w6532.pdf
N1  - Author contact info:
Austan Goolsbee
Booth School of Business
University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-5869
Fax: 773/702-0458
E-Mail: goolsbee@chicagobooth.edu
AB  - Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized.  In the U.S., the government has directly funded a large fraction of total R&D spending. This paper shows that there is a serious problem with such government efforts to increase inventive activity.  The majority of R&D spending is actually just salary payments for R&D workers.  Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages.  Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers. Because of the higher wages, conventional estimates of the effectiveness of R&D policy may be 30 to 50% too high.  The results also imply that by altering the wages of scientists and engineers even for firms not receiving federal support, government funding directly crowds out private inventive activity.
ER  -