Groundbreaking empirical research shows where innovation really comes from

Gaps in opportunity for talented kids with low socioeconomic status don’t just hold back poor, female, black, or Latino children as individuals — they also impose potentially enormous losses to society as a whole. That’s the conclusion of groundbreaking empirical research published today by a team of leading economists from the Equality of Opportunity Project that Vox got an exclusive early look at.

A unique combination of data sets for the first time lets us see more about who is — and, crucially, is not — able to successfully pursue a career as an inventor, and thus learn more about what’s arguably the biggest mystery in all of economics.

Nothing matters more for economics and human living standards than innovation. It’s innovation that has allowed us to cure diseases and extend life spans. It’s innovation that has drastically increased the pace of transportation and communication, and ultimately it’s innovation that has let most people do high-wage work rather than subsistence agriculture.

What the researchers found is fascinating. They discovered that both an actual ability to invent things and early life exposure to a culture of innovation and opportunity are crucial to driving inventions. Ability itself is, of course, unevenly distributed. But in the United States, so is opportunity — with huge numbers of highly skilled children from unfavorable backgrounds seemingly locked out of pathways to careers as inventors.

“High-scoring black kids and Hispanic kids go into innovation at incredibly low rates,” says Raj Chetty, a Stanford economist who led the research team. “There must be many ‘lost Einsteins’ in those groups” — children who appear to have been similarly able at a young age to their white and Asian peers but who never got a chance to deploy their skills. “

Girls also grow up to be inventors at a much lower rate than their early-life technical skills would suggest, and though the gender gap is closing, it’s doing so very slowly. On the current pace of increase in women’s involvement in innovation, it would take 118 years to reach gender parity.

For decades, conservative policymakers and the business community have subscribed to the theory that increasing innovation requires making inventions more profitable. From lower marginal tax rates to stronger intellectual property protections, the reigning theory of the past 40 years has been that to create a broadly prosperous society, we need to unleash the job creators. They’ve stuck with that story — very much embedded in a Republican tax plan that prioritizes higher after-tax profits for business owners over virtually every other consideration — even as the rate of productivity growth has consistently come in lower in the post-Reagan years than it was in the higher-tax era of the 1940s through 1970s.

Rather than cutting taxes on financially successful adults, we ought to think about how to improve what Chetty calls our “capacity to tap into currently underused potential.” He and his colleague calculate that If women, minorities, and children from low- and middle-income families invented at the same rate as white men from high-income (top 20%) families, there would 4 times as many inventors in America as there are today.

While Congress prepares to pass a tax bill that pushes the old conventional wisdom about bolstering financial incentives, empirical research suggests that starving the government of funds could be counterproductive. Ensuring that all children who show a talent for math and science are encouraged to innovate, provided with role models, and shown paths forward would cost money. But making sure that poor, female, black, and Latino kids aren’t locked out of innovation isn’t just a crucial matter of fairness; it’s quite literally the most important thing we can do for the future of humanity.

Five surprising findings about innovation

The study, undertaken by Chetty along with Alex Bell of Harvard, Xavier Jaravel of the London School of Economics, Neviana Petkova of the US Treasury, and John Van Reenen of MIT, is unique due to its ability to combine patent records of more than 1 million American inventors with income tax records. That solves a major problem in past efforts to study the drivers of new ideas.

Traditional sources of data on innovation — mostly patents — don’t offer any meaningful information on who is doing the inventing, not even including cursory information about the inventor’s age and gender. But by linking patent application data from 1996 through 2014 to federal income tax returns, the team was able to track inventors’ lives from birth through adulthood to understand who is inventing things and where they come from. And by focusing on the geography of innovation, they show that direct exposure to a culture of invention and to role models appears to be playing a key role.

• Among affluent families, young kids who perform highly on math tests are much more likely to make successful inventions than low-ability kids.
• But this isn't true among low-income families. There, high-scoring and low-scoring kids alike are about equally unlikely to become inventors — suggesting that it isn’t a lack of aptitude that’s holding back poor kids; it’s that aptitude alone isn’t enough.
• Kids are more likely to grow up to be inventors when they grow up in cities with other inventors, which means where you’re born has a lot to do with whether you’ll innovate.
• This holds up even when we look into specific categories of invention. If you grow up in a city full of antenna innovators, you are more likely to innovate regarding antennas — suggesting that early life exposure to relevant networks is important.
• Fascinatingly, the effect is gender-specific — girls are likely to grow up to be innovators only if their city includes an existing stockpile of female innovators (and similarly, male role models for boys), underscoring the importance of role models and self-image.

Particularly fascinating: The geographical aspects hold regardless of where you live as an adult. The Boston area has thriving industrial clusters in both information technology and medical devices. But Boston-area patent-holders who grew up in Silicon Valley are very likely to have computer-related patents, whereas those who grew up in Minneapolis where there’s a robust medical device industry are likely to have medical device patents. In other words, it’s not just that people are likely to work in locally thriving industries — the specifics of childhood experience seem to matter.

The moral of the story seems to be that a reasonably large number of children who have the capacity to grow up to be inventors end up not doing so. Through some mix of their parents’ socioeconomic status, the city where they grew up, and oftentimes their gender, they are prevented from obtaining access to the networks that would have facilitated that life choice.

Ability matters, but so does privilege

The authors find, perhaps not so surprisingly, that inventors are considerably whiter, maler, and from more economically privileged families than non-inventors — with children born to parents in the top 1 percent of the income distribution being 10 times more likely to become inventors than those born to families with below-median incomes.

But when the team enriched their data with detailed information about children’s test scores in New York City, they found that if you look exclusively at high-ability kids, you see that affluent ones are much more likely to grow up to be inventors.

Something similar holds for race. Among third-graders with high math ability, the white and especially Asian kids are relatively likely to grow up to be inventors, while high-ability black and Latino children are only very slightly more likely to become inventors than low-ability ones.

This seems to suggest that over and above whatever disadvantages in life may make poor, black, and Latino children relatively unlikely to have high math test scores, those who do test well aren’t well-connected with the opportunity to innovate.

Girls, by the same token, are much less likely to grow up to be inventors regardless of childhood ability level.

This adds up to suggestive evidence that a large number of high-ability but low-income, female, black, or Latino young people have the intrinsic ability to become high-impact inventors but don’t end up realizing that potential at the same rate that richer, male, white, and Asian kids do. That’s an unfortunate lost opportunity for the individuals affected, but also a potentially game-changing loss to all of society.

And a close look at the geography of innovation suggests that role models and networks are playing a key role.

The fascinating geography of innovation

It’s well-understood that certain places are hubs of innovation and also that hubs tend to specialize. There is a lot of automotive engineering happening in the Detroit area but not a ton of computer stuff; the San Francisco area is the opposite.

What’s perhaps more surprising is that it’s not just that living in a high-innovation area makes a person more likely to seek and obtain patents; merely growing up in one has the same effect. Mapping patent rates by childhood commute zone reveals huge geographic disparities in the odds that one will grow up to be an inventor — with impressive strength across the northern Midwest, coastal California, and New England and weakness throughout much of the South and Southwest.

One simple, albeit relatively boring, explanation for this is simply that people are relatively likely to live near where they grew up. So growing up in Silicon Valley makes you likely to live in Silicon Valley, which makes you likely to get patents, since there’s a lot of patenting happening there.

This is, of course, true, but the research team finds that the influence of growing up in a high-innovation commuting zone holds even if you control for which metro area the inventor works in as an adult.

Even more impressively, this holds when you look not just at innovation in general but at sector-specific innovation across a fairly fine-grained set of 445 different technical categories. People who grow up in a metro area with a lot of patents in one category are especially likely to become adults who have patents in that exact same category, indicating that there is something about childhood exposure in particular that is influencing life outcomes.

The gender dynamics here are especially interesting. High-ability boys are more likely than high-ability girls to grow up to be inventors, as we have seen. This gender gap is narrowing over time, but at the current rate of narrowing it would take more than a century to achieve equality. And when the Equality of Opportunity team at the geographical breakdown, they found that gender was significant here too — female inventors are especially likely to innovate in a category where female inventors were prevalent in the metro area where they grew up, suggesting that the specific ability to personally identify with older women in the field is playing an important role here.

The secret to unlocking innovation isn’t tax cuts — it’s equality

This research is, of course, not entirely definitive. Patents are a convenient proxy for innovation, since you can count them and associate them with specific inventors, but they are obviously imperfect in several ways. Third-grade math test scores, similarly, are a decent but imperfect proxy for technical ability — a proxy that happens to have the virtue of being available. Establishing causation through statistical analysis is notoriously difficult, and in this case some of the precise causal mechanisms being posited are a little unclear.

But given the overwhelming importance of the topic to both equality of opportunity and broader economic growth, any knowledge is important — especially because we have traditionally known so little about innovation and innovators.

And the result that cries out clearest in this study is that financial rewards don’t seem to have much to do with any of this. Groups that are underrepresented among inventors as a whole are also underrepresented among the elite group of inventors who develop very high-impact patents and earn very large financial rewards for doing so. But they are no more underrepresented among the financial elite than they are among the broad mass of inventors.

Rather than focusing on the incentive structure, then, increasing the supply of inventions seems best tackled by directly addressing the barriers that keep members of underrepresented groups from becoming innovators.

How to do that is, of course, a subject that needs more research. But the conclusions of this study do seem to point clearly in a few directions — most critically to the need to expose young people, especially those who show early-life excellence at math and science, to actual inventors and their workplaces. It appears this would be especially valuable for kids from underrepresented demographic groups, and that to the extent possible, involving demographically similar adults in exposure programs could be useful.

Doing so on a big scale would, of course, cost money — the exact opposite of the philosophy that emphasizes tax cuts and small government as the key to unlocking innovation and growth.

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