TY  - RPRT
        AU  - Howell, Sabrina T.
AU  - Brown, J. David
        TI  - Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms
        PY  - 2020/Jan/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 12942
        UR  - https://www.iza.org/publications/dp12942
        AB  - This paper examines how employee earnings at small firms respond to a cash flow shock in the form of a government R&D grant. We use ranking data on applicant firms, which we link to IRS W2 earnings and other U.S. Census Bureau datasets. In a regression discontinuity design, we find that the grant increases average earnings with a rent-sharing elasticity of 0.07 (0.21) at the employee (firm) level. The beneficiaries are incumbent employees who were present at the firm before the award. Among incumbent employees, the effect increases with worker tenure. The grant also leads to higher employment and revenue, but productivity growth cannot fully explain the immediate effect on earnings. Instead, the data and a grantee survey are consistent with a backloaded wage contract channel, in which employees of financially constrained firms initially accept relatively low wages and are paid more when cash is available.
        KW  - R&D grants
KW  - rent sharing
KW  - earnings inequality
KW  - regression discontinuity design
        ER  -