The Paradox of Inventors’ Job Security

This paper investigates how job security affects the types of innovations generated by corporate inventors. By increasing inventors’ prospects of remaining with their current employer, job security strengthens their incentives to invest in firm-specific technological knowledge. Thus, while employment protection provides inventors with a safety net to fail that could facilitate exploration, it instead drives them to produce innovations that draw more heavily on internal technologies and are less novel. We test this argument using matched employer-employee data constructed from patent records. To examine inventor-level responses to increased job security, we exploit the staggered adoption of wrongful-discharge laws across U.S. states between 1980 and 1999. Using cross-state variation over time in a difference-in-differences framework, we find that increased job security leads inventors to produce innovations that rely more intensely on their firms' technologies, are less novel, and generate higher private value to their employers.