PARIS SCHOOL OF ECONOMICS-EHESS DOCTORAL DISSERTATION in Analyse et Politiques Economiques Firm dynamics, innovation and productivity By Antonin Bergeaud Paris School of Economics - EHESS Under the supervision of Philippe Aghion Collège de France - London School of Economics - Paris School of Economics Jury composition *** Thesis advisor: Philippe Aghion (CdF, LSE, PSE) Referee 1: John Van Reenen (MIT) Referee 2: Margaret Kyle (Mines Paris Tech) President: Roger Guesnerie (PSE) ii Acknowledgments I would like to thanks my advisor, Philippe Aghion, for his guidance throughout my thesis. It was a real privilege to benefit from his comments, advice and exceptional knowledge. I owe him my introduction to the academic world and my motivation to continue as a researcher. I would also like to express my gratitude to John Van Reenen, Margaret Kyle and Roger Guesnerie to have accepted to be part of my jury and to devote their valuable time to help me improve my research and to show me what high academic standard can be. During my PhD studies, I had the chance to discover various places and to discuss with great fellow students from around the world, which was a constant source of inspiration. I would therefore like to thanks my colleagues and friends at the Center for Economic Performance, the Institute for Fiscal Studies, the Banque de France and the Collège de France, with a special word to Simon, Charlotte, Capucine, Camille, Thomas and Clément for providing such a friendly work atmosphere. I also had the chance to work and meet with different researchers and professors who helped me to blossom as the economist I would like to be. I am thus indebted to David Hémous, Ufuk Akcigit, Marc Melitz, Richard Blundell, Rachel Griffith, Pete Klenow, Timo Boppart, Huiyu Li, Matthieu Lequien, Gilbert Cette and Rémy Lecat. A special thanks to Simon Ray, who is a great friend and collaborator and who was constantly by my side during all the PhD. Last but not least, I would like to thanks my closest friends, without whose support I would not have come this far and my family, my mother Martine who was always here to strengthen iii me, and my father, brother and sister for their unconditional love and encouragement. And of course, my last word are for Anne, without whom none of this would have been possible. iv Firm dynamics, innovation and productivity Antonin Bergeaud Paris School of Economics - EHESS Paris, France 2017 ABSTRACT This thesis studies different aspects of firm dynamics both theoretically and empirically. All chapters extensively rely to large microeconomic dataset that are used to test theoretical pre- dictions. First chapter looks at the innovation premium, that is the response to workers’ wage when their firm increases its R&D intensity and therefore becomes closer to the technological frontier. This response is evaluated using matched employers-employees data with information on the wage of 1% of all UK based workers. Second chapter focuses on the response to an export demand shock to a firm’s innovation and productivity looking at all French firms with at least one patent and using both fiscal and customs micro data. Finally, the third chap- ter considers the role of factor adjustment costs, especially on corporate real-estate, on firms employment dynamism following a productivity shock. This chapter uses a large sample of single-establishment French firms. Taken together, these three chapters explore different dimension of the response to firms to a demand and/or a productivity shock, either in terms of employment and wage, or in terms of innovation and size. v RÉSUMÉ Cette thèse étudie différents aspects de la dynamique des firmes, à la fois de manière théorique et empirique. Tous les chapitres utilisent largement différentes bases de données microé- conomiques pour tester les prédictions théoriques. Le premier chapitre s’intéresse au premium de l’innovation, c’est à dire la réaction du salaire des employés d’une entreprise qui augmente son intensité de R&D et qui devient ainsi plus proche de la frontière technologique. L’évaluation de cette réponse se fait en utilisant une base de donnée sur le salaire de 1% de des travailleurs basés au Royaume-Uni. Le second chapitre s’intéresse à la réponse de l’innovation et de la productivité des firmes à un choc de demande à l’export, considérant les entreprises françaises ayant au moins un brevet, et utilisant pour cela des bases de données à la fois d’origine fiscale ou provenant des douanes. Enfin le troisième chapitre étudie le rôle des coûts d’ajustement des facteurs de production, et en particulier de l’immobilier des entreprises, sur la dynamique de l’emploi des entreprises à la suite d’un choc de productivité. Ce chapitre utilise un large échantillon d’entreprise mono établissement française. Pris tous les trois, ces chapitres étudient différentes dimensions de la réponse des firmes à un choc de demande ou de productivité, que ce soit une réponse en termes d’emploi, de salaire, d’innovation ou de taille. vi Notice: chapter of this dissertation are based on self-containing research articles. Chapter 2 is based on a joint work with Philippe Aghion, Rachel Griffith and Richard Blundell, Chapter 3 is based on a joint work with Philippe Aghion, Marc Melitz and Matthieu Lequien and Chapter 4 is based on a joint work with Simon Ray. This explains that similar information can be given in multiple places of the thesis. vii Table of Contents 1 Introduction..................................... 1 1.1 Summary of first chapter...............................1 1.2 Summary of second chapter.............................2 1.3 Summary of third chapter..............................4 2 The innovation premium to low skill jobs.................... 7 2.1 Introduction......................................7 2.2 The Basic Evidence on Wages and Innovation................... 11 2.2.1 The data.................................... 12 2.2.2 More innovative firms pay higher wages................... 12 2.2.3 Our main empirical finding.......................... 18 2.3 A Simple Model.................................... 22 2.3.1 Production technology............................ 23 2.3.2 Wage negotiation............................... 23 2.3.3 Outsourcing.................................. 29 2.4 Further empirical evidence.............................. 31 2.4.1 Characteristics of occupations........................ 31 2.4.2 Tenure of low-skilled workers......................... 35 2.5 Summary and conclusion............................... 36 3 The Impact of Exports on Innovation: Theory and Evidence . 37 3.1 Introduction...................................... 37 3.2 Theory........................................ 41 3.2.1 Consumer optimization............................ 41 3.2.2 Firm optimization.............................. 42 viii 3.2.3 Innovation choice............................... 42 3.2.4 Endogenous determination of λ ....................... 46 3.2.5 The direct and indirect effects of increased market size.......... 48 3.2.6 The effect of an increased share of country D’s consumption on French products.................................... 49 3.2.7 More general utility and R&D cost functions................ 51 3.3 Exporters and Innovators: data and descriptive statistics............. 53 3.3.1 Data sources.................................. 53 3.3.2 Sector breakdown and skewness....................... 55 3.3.3 The innovation-export nexus......................... 57 3.4 Empirical framework and results.......................... 62 3.4.1 Identification strategy: firm-level export shocks.............. 62 3.4.2 Estimation................................... 65 3.4.3 Baseline results................................ 66 3.4.4 Additional results.............................. 68 3.4.5 Additional results............................... 74 3.5 Conclusion...................................... 80 4 Adjustment Costs and Factor Demand: New Evidence From Firms’ Real Estate......................................... 81 4.1 Introduction..................................... 81 4.2 Background...................................... 85 4.2.1 Data...................................... 86 4.2.2 Firms’ mobility in France.......................... 86 4.2.3 Relocating behaviour and workforce growth................ 88 4.3 Model......................................... 90 4.3.1 Model setup.................................. 90 4.3.2 Solving the model............................... 94 4.3.3 Results from simulations........................... 97 4.4 Empirical evidence.................................. 104 ix 4.4.1 Effect of a local relocation on employment dynamics............ 105 4.4.2 Effects of adjustment costs on employment dynamics........... 109 4.4.3 Implication in terms of misallocation.................... 119 4.5 Conclusion...................................... 124 5 Conclusion ......................................125 Appendices........................................127 A Appendix of Chapter 1...............................128 A.1 Data construction and additional description................... 128 A.1.1 Business Expenditures on Research and Development........... 128 A.1.2 Annual Survey on Hours and Earnings (ASHE).............. 130 A.1.3 Travel to work areas............................. 134 A.1.4 Matching BERD and ASHE......................... 137 A.1.5 Descriptive statistics............................. 139 A.1.6 O*NET data................................. 139 A.2 Decomposition of variance.............................. 143 A.3 Extending the model................................