Business dynamics of innovating firms: Linking U.S. patents with administrative data on workers and firms

• Published date: 01 September 2018
• Author: Tariqul Islam,Javier Miranda,Stuart J.H. Graham,Cheryl Grim,Alan C. Marco
• Date: 01 September 2018
• DOI: http://doi.org/10.1111/jems.12260

Received: 1 July 2015 Revised: 26 January 2017 Accepted: 22 March 2017

DOI: 10.1111/jems.12260

SPECIAL ISSUE

Business dynamics of innovating firms: Linking U.S. patents with

administrative data on workers and firms

Stuart J.H. Graham1Cheryl Grim2Tariqul Islam3Alan C. Marco4

Javier Miranda2

1Scheller College of Business, GeorgiaInsti-

tute of Technology,Atlanta, Georgia

2U.S. Census Bureau, Suitland, Maryland

3U.S. Patentand Trademark Office, Alexan-

dria, Virginia

4School of Public Policy,Georgia Institute of

Technology,Atlanta, Georgia

Correspondence

JavierMiranda, U.S. Census Bureau, 4600

SilverHill Rd, Washington, DC 20233.

Email:Javier.Miranda@census.gov

Abstract

This paper discusses the construction of a new longitudinal database tracking inven-

tors and patent-owning firms over time. We match granted patents between 2000 and

2011 to administrative databases of firms and workers housed at the U.S. Census

Bureau. We use inventor information in addition to the patent assignee firm name to

improve on previous efforts linking patents to firms. The triangulated database allows

us to maximize match rates and provide validation for a large fraction of matches.

In this paper, we describe the construction of the database and explore basic features

of the data. We find patenting firms, particularly young patenting firms, dispropor-

tionally contribute jobs to the U.S. economy.We find that patenting is a relatively rare

event among small firms but that most patenting firms are nevertheless small, and that

patenting is not as rare an event for the youngest firms compared to the oldest firms.

Although manufacturing firms are more likely to patent than firms in other sectors,

we find that most patenting firms are in the services and wholesale sectors. These new

data are a product of collaboration within the U.S. Department of Commerce, between

the U.S. Census Bureau and the U.S. Patent and Trademark Office.

KEYWORDS

innovation, linked administrative data, patents

1INTRODUCTION

Policy makers, researchers, and the public are interested in understanding the sources of job creation and economic growth in

the U.S. economy. Innovative firms are believed to play an important role in this regard, introducing new products or services

that satisfy a previously unmet need or processes that provide existinggoods and ser vices in newand more efficient ways. These

firms will prosper and grow and their competitors will adjust and respond with further innovations of their own, or become

obsolete and eventually exit the market. The reallocation of resourcesfrom less productive, less efficient firms to more efficient

and productive firms is in large measure responsible for the productivity gains that ultimately drive the long-term improvements

We thank Kirsten Apple, David Dreisigmeyerand Jim Hirabayashi for their assistance in answering many questions related to the U.S. Patent and Trademark

Office data and processes. We thank Deborah Wagner and Juan Carlos Humud for their work to assign protected identity keys to inventors. We thank Lucia

Foster, John Haltiwanger, two anonymousreferees, and participants at seminars at t he U.S. Census Bureau and U.S. Patent and Trademark Office for useful

comments. We thank participants in the Annual Searle Center Research Roundtable on Patents and Technologyand NBER Innovation workshop. Graham and

Marco were employeesof the USPTO and Islam was an employee of the U.S. Census Bureau during the drafting of this document. Any opinions and conclusions

in this paper are those of the authors and do not necessarily represent the views of the U.S. Census Bureau or the U.S. Patent and Trademark Office. All results

have been reviewedto ensure that no confidential dat aare disclosed.

372 © 2018 Wiley Periodicals, Inc. J Econ Manage Strat. 2018;27:372–402.wileyonlinelibrary.com/journal/jems

GRAHAM ET AL.373

in our standards of living. Despite the importance of this innovation and reallocation process to U.S. economic growth, our

understanding of the particular firms at the center of the innovation activities and their role in reallocation and productivity

growth is still very limited.1

The current debate concerning the value of more recent innovations relative to the great breakthroughs of the past is a clear

indication of our inability to track the impact innovativeactivity has on reallocation and productivity g rowthin the United States.

There are two reasons for this. First, it is hard to identify innovative firms. Data on the innovative activities of firms are hard to

capture because the outputs of innovation (e.g., knowledge,networks, new process, new software, and marketing) are challenging

to quantify.As a consequence, the field lacks a properly defined identifying frame. Second and relatedly, researchers often rely on

inputs to innovation such as research and development(R&D) expenditures as a proxy for innovation or technological progress

because measuring innovation is difficult. However, R&D survey data are at best an imperfect measure of the inputs of innovation,

and are typically skewed towardthe largest firms thus missing the smaller and younger firms—the most dynamic segment in the

U.S. economy.2

This paper discusses a new longitudinal linked patent-business database tracking patenting firms and inventors over time

created under a joint effort between the U.S. Census Bureau and the U.S. Patent and Trademark Office (USPTO). Information

contained in granted patents allows us to capture the types of inventive activity that result in a U.S.patent. In this initial research

effort, we match patents issued in the United States between 2000 and 2011 independently to two Census Bureau administrative

databases, one of businesses (firms) and the other of workers. Prior efforts have used the assignee information contained in patent

documents to identify the firms where the invention is taking place (see Balasubramanian & Sivadasan, 2010, 2011; Eberhardt,

Helmers, & Yu, 2011; Hall, Jaffe, & Trajtenberg, 2002; Kerr & Fu, 2008).3The presence of nonstandard business names in

patent documents and the fact that corporations often file for patents through subsidiaries or other legal entities complicates

identification of the patent assignee business considerably (Thoma et al., 2010). Here, we extend earlierapproaches by exploiting

not only the business assignee names, but also the inventor information contained in the focal patent document.

Using both inventorand assignee information to disambiguate and link granted patents to t heir firm owners is a methodological

innovation in the field. Using the inventor information on the patent allows us to identify human inventors and match these

to the population of U.S. workers available in Census Bureau databases, which provides us with an independent link to the

parent corporation where they were employed at the time the patent application was filed at the USPTO. We triangulate the

two independent sources of business information (assignees and inventors) to maximize match rates and provide validation for

a large portion of matches.

The result is a database tracking patenting firms as well as the network of inventors employed at those firms. We are able

to account for ownership on 91% of U.S. patents using this approach, a significant improvement over prior efforts matching

70–81% (Balasubramanian & Sivadasan, 2010; Kerr & Fu, 2008). Disambiguated databases of both patenting firms and human

inventors are by-products of our triangulation. Forthcoming papers will offer descriptions of the disambiguated databases. In

this paper, we describe only the firm database, documenting basic features of the patenting firms we have identified along with

characteristics of their patent portfolios.

Our methodological improvement allows us to provider icherinformation on patenting by the smallest and youngest firms in

the United States, a segment often underrepresented by standard methods. We find patenting firms, particularly young patenting

firms, disproportionally contribute jobs to the U.S. economy. Specifically, our analysis shows that the averagegrowth differential

between patent-holding firms and nonpatent-holding firms is in excess of three growth points. Consistent with the literature,

we find that patenting is a relatively rare event among small firms but nevertheless most patenting firms are small.4We also

find that, compared with patent rates among the oldest firms, patenting is not as rare of an event for the youngest U.S. firms.

Moreover, although manufacturing firms are most likely to patent, we find that most patenting firms are in the services and

wholesale sectors. Because our methodological improvement allows us to follow both establishments (locations, often subunits

of firms) and firms (often larger parent entities) over time, we are able to leveragethe fir m-workerlinks in the Census databases,

thereby providing an opportunity to explore where invention occurs, and possibly allow researchers to identify the particular

establishment locations where specific inventive activities are taking place.5

Because of the sensitivity of Census Bureau data used in the match, the micro database is restricted-use, but will be updated

annually and, contingent on review,eventually will be accessible to qualified researchers with approved projects through secure

U.S. Federal Statistical Research Data Centers.6However, a specific goal of the joint Census Bureau-USPTO project is, to

the greatest extent possible, to create a series of new public-use products derived from the confidential microdata, as public-

use tabulations at the Census Bureau meet disclosure avoidance rules and are thus accessible to any member of the public

wishing to explore and conduct research with such aggregated tabulations. In this paper, we describe basic features of identified

patent-holding firms. We then explore job creation and destruction statistics for patent-holding and nonpatent-holding firms by

characteristics including firm age, firm size, and industry.