Reenen, John Van (ed.), ‘Innovation and Human Capital Policy’, Innovation and Public Policy (Chicago, IL, 2022; online edn, Chicago Scholarship Online, 22 Sept. 2022), https://doi.org/10.7208/chicago/9780226805597.003.0003, accessed 8 Dec. 2023.

1. Productivity Growth Slowdown: Since the 1970s, U.S. productivity growth has slowed, with GDP growth declining from 4% in the postwar years to under 2% since 2000. Real wage growth has also slowed, particularly for less educated workers.
2. Innovation’s Importance: For advanced countries like the U.S., innovation is vital for long-term productivity. Less developed countries benefit from technological catch-up. Interventions like management practice upgrades are valuable even in richer nations.
3. Human Capital and Innovation: Human capital policies aim to increase potential innovators. Supply-side policies, such as improving R&D workforce quality, are contrasted with demand-side policies like tax credits and R&D grants. The inelastic supply of R&D workers can lead to increased costs without volume increase, as found by Goolsbee (1998).
4. R&D Expenditure Changes: In 2015, U.S. R&D spending was nearly half a trillion dollars. The composition has shifted from government to private funding, affecting the type of research supported, with the government traditionally funding more basic research.
5. Researchers in the Workforce: The number of U.S. researchers has grown from 5.3 per thousand in 1981 to 9.2 in 2017. Other countries like France, Germany, Japan, and notably South Korea (from 6.3 in 2001 to 15.3) have overtaken the U.S. in this metric.
6. High-Skilled Visas Increase: The number of J-1 visas rose from around 150,000 to over 330,000 between 1991 and 2015, with H-1B visas increasing by 52,000 in the same period.
7. Government’s Role in R&D: R&D has public good characteristics, leading to underinvestment without government intervention. Examples of successful government-funded projects include jet engines, radar, nuclear power, GPS, and the internet.
8. Universities and Innovation: The founding and expansion of universities, especially in STEM fields, are linked to local and national economic growth. Examples include Route 128 in Massachusetts and Silicon Valley in California.
9. Immigration’s Impact on Innovation: Immigrants make up a significant portion of the STEM workforce and contribute substantially to patents and Nobel Prizes in the U.S. Policies affecting H-1B visas show positive effects on innovation.
10. Policy Responses and Innovation Gaps: Addressing the innovation gap involves improving conditions in disadvantaged neighborhoods and schools, focusing on early high achievers in STEM. The top 5% of third graders in math scores have a higher likelihood of becoming future inventors.

Possible policy responses mentioned in the article

1. Universities as Innovation Drivers:

• Expansion of Universities: The growth of universities, particularly those specializing in STEM fields, is linked to increased local and national economic growth and innovation.
• Direct R&D Grants: Public R&D subsidies are often directed at universities, as knowledge spillovers from basic academic research are potentially greater than from corporate research.
• Case Studies of Government Interventions: These are used to assess the impact of government funding in university research and innovation, with examples of both successful (e.g., jet engines, GPS) and unsuccessful projects (e.g., Concorde).

1. Immigration Policies to Boost Innovation:

• Skilled Immigration: The U.S. has historically had a more open policy towards skilled immigration. Immigrants make up a significant part of the workforce, especially in the STEM sector, and contribute greatly to patents and innovation.
• High-Skilled Visas: The rise in high-skilled visas (like J-1, H-1B) is seen as positive for innovation, with specific policies affecting these visas showing beneficial effects.

1. Support for Disadvantaged Students:

• Targeted Educational Resources: Focus on improving conditions in disadvantaged neighborhoods and schools, with a particular emphasis on STEM education.
• Identifying and Supporting High Achievers: Special programs to identify and support early high achievers in STEM from underrepresented minorities, leveraging the correlation between early math skills and future inventor status.

1. Other Suggested Policy Responses:

• Subsidizing STEM Education: Increasing support for PhDs and postdocs in STEM fields, making training and careers in these areas more attractive.
• Addressing R&D Market Failures: Government intervention is necessary to address the underinvestment in R&D due to its public good nature. This includes managing the balance between incentivizing innovation and avoiding the pitfalls of temporary monopolies created by intellectual property rights.
• Macro and Microeconomic Analysis: Encouraging studies that look at the impact of human capital on growth and specific interventions in the STEM workforce, recognizing the challenges of establishing causality at macro levels.