Hutchins Roundup: Profits from patents, the value of data, and more

By Finn Schuele, Jeffrey Cheng, Louise Sheiner

Studies in this week’s Hutchins Roundup find that firms that win patents spread the benefits unevenly among their workers, the economic measurement of free digital goods should account for the value of user-provided data, and more.

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Firms that win patents spread the benefits unevenly among their workers

Patrick Kline of the University of California, Berkeley and coauthors show firms that successfully file for patents reward some workers more than others. Linking patent application data to businesses’ and individuals’ tax filings, the authors compare firm performance and worker compensation between firms whose initial patent application is approved with those whose initial application is rejected. They find firms with a valuable patent hire 22 percent more workers and pay more. The wage gains, however, are concentrated among high earners, men, inventors, and long-time employees. For example, mean earnings for the top quartile of workers rise by $8,000 after a successful filing, whereas there is little effect on the wages of workers in the bottom three quartiles; earnings of employees who are present during the application year rise by $4,000, but new hires do not see higher earnings or faster wage growth.

Economic measurement of free digital goods should account for the value of user-provided data

The proliferation of free digital goods and services, like social media platforms and search engines, poses a challenge to policy makers who generally rely on prices to indicate a good’s value. Wendy Li of the U.S. Bureau of Economic Analysis, Makoto Nirei of the University of Tokyo, and Kazufumi Yamana of Kanagawa University point out that these digital goods are not truly free because users give up their personal data to use them. The authors find that the value of that data depends crucially on a firm’s business model (pdf download). For instance, data is more valuable to firms with in-house data analytics capabilities and monetization strategies than to those that outsource the data analytics work. The authors estimate the value of data for several representative firms by using sales, general, and administrative expenses, reported in annual income statements, as a proxy for investment in business models. Their initial results indicate that data can have enormous value. The value of Amazon’s data, for example, can account for 16 percent of Amazon’s market valuation. Companies, not consumers, capture most of the benefits of data because data becomes much more valuable in the hands of a company with large datasets and analytical capabilities and because consumers lack the knowledge to value their own data.

Increasing the minimum wage is effective for reducing poverty

Arindrajit Dube from the University of Massachusetts, Amherst, finds that increasing the minimum wage boosts family incomes at the bottom of the income distribution even after accounting for job losses caused by a higher minimum wage and lost government benefits.  Using individual-level data from the Current Population Survey from 1984 to 2013, the author finds that increasing the federal minimum wage from $7.25 to $12 per hour would reduce the non-elderly population in poverty by 1.9 percentage points, or 6.16 million individuals. The author also finds that 80 percent of the income from minimum wage increases accrues to families below the 30th income quantile—about $35,000 in 2017—with the largest impact on families at the 10th quantile of family income. At the 10th quantile, the author calculates that a minimum wage increase to $12 per hour raises annual after-tax and transfer income by 12.2 percent, or $1,826.

Chart of the week: Global issuance of leveraged loans has been growing since the financial crisis and is back to pre-crisis highs

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Quote of the week:

“In more ways than one, Bitcoin is the evil spawn of the financial crisis. Lightning may strike me for saying this in the Tower of Basel – but Bitcoin was an extremely clever idea. Sadly, not every clever idea is a good idea. The opportunities of the blockchain are many, but the problems of Bitcoin are also plentiful. I believe that Agustín Carstens summed its manifold problems up well when he said that Bitcoin is ‘a combination of a bubble, a Ponzi scheme and an environmental disaster,’” says Benoît Cœuré, member of the Executive Board of the European Central Bank.

“That said, there is still much that we do not understand, and things are moving rapidly. … Earlier this year, we, together with the Markets Committee, published a first study on central bank digital currencies. This is a particularly pressing issue in countries where demand for cash has been declining sharply. Sveriges Riksbank, for example, may soon start an inquiry to draw up concrete proposals for the amendments of the Sveriges Riksbank Act to eventually pave the way for the introduction of the e-krona. In most other jurisdictions, there is more time to continue studying the technology and to assess the implications for both monetary policy and financial stability of central banks issuing their own digital currencies. Here I see tremendous potential for macroeconomists to contribute and to examine questions of exceptional relevance, such as how central bank digital currencies may affect the future of financial intermediation.”

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