Innovation and spatial inequality in Europe and USA

Abstract

Innovation is a crucial driver of urban and regional economic success. Innovative cities and regions tend to grow faster and have higher average wages. Little research, however, has considered the potential negative consequences: as a small body of innovators gain relative to others, innovation may lead to inequality. The evidence on this point is fragmented, based on cross-sectional evidence on skill premia rather than overall levels of inequality. This article provides the first comparative evidence on the link between innovation and inequality in a continental perspective. Using micro data from population surveys for European regions and US cities, the article finds, after controlling for other potential factors, good evidence of a link between innovation and inequality in European regions, but only limited evidence of such a relationship in USA. Less-flexible labour markets and lower levels of migration seem to be at the root of the stronger association between innovation and income inequality in Europe than in USA.