Fact of the Week: A 10 Percent Increase in Patents Increases Income Equality

March 11, 2019

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A 10 percent increase in patents lowers the share of income going to the top 1 percent of earners by 2.4 percent.

Source: Nikos Benos and Georgios Tsiachtsiras, “Innovation and Income Inequality: World Evidence,” MPRA Paper, University Library of Munich, Germany, February 7, 2019.

Commentary: In the decades since 1980, there has been a global trend in which income inequality between countries has decreased while income inequality within countries has increased, and many have attributed the latter to technological innovation. But a new study has investigated the influence of innovation on income inequality by examining income and patenting data across 29 countries from 1979 to 2012, and it finds that a 10 percent increase in citations (a measure of a patent’s impact) is associated with a 0.8 percent reduction in the share of income going to the top 1 percent in the following 5 years. More patenting has an even stronger effect, with a 10 percent increase leading to a 2.4 percent decrease in the income share of top earners.