Do innovative firms pay higher wages? Micro-level evidence from Brazil

Abstract

This paper explores the relationship between innovation and wages using Brazil’s employer–employee census (RAIS) and a novel measure of innovation derived from the share of technical and scientific occupations of workers. The results show a robust and positive wage premium associated with innovative firms. The decomposition of this innovation-related wage premium suggests that it is larger for workers in manufacturing, although also positive and significant for those in agriculture and services; and larger for large firms. More importantly, the paper explores the causality between innovation and wages. First, we find some empirical support for “self-selection” — firms that innovate already pay higher wages before becoming innovators. Second, we find strong evidence of wage increases associated with starting innovation activity, which are persistent for three years after firms start innovating. Innovation pays off also for workers.