Abstract:
New technologies emerge and translate into economic growth through the team effort of inventors, entrepreneurs, and production workers. This paper provides a unified life-cycle framework that links sorting into these occupations, innovation in firms, and aggregate growth. We connect detailed microdata from Denmark on entrepreneurs, inventors, and firms to a novel quantitative endogenous growth model with occupational sorting, entrepreneurial startups, and innovation. Empirically, we find that while parental exposure is a key determinant of entrepreneurship, becoming an R&D worker is primarily determined by education and IQ. Entrepreneurs with higher IQs and higher educational attainment are more likely to be innovative: they hire more R&D workers, patent more, and grow faster. The quantified model highlights the importance of schooling for both the supply of R&D, through R&D workers, and the demand for R&D, from innovative entrepreneurs. The effect of family background on occupational sorting creates talent misallocation in the economy: individuals from lower-income families are less likely to access education, R&D careers, and become innovative entrepreneurs. While R&D and entry subsidy can increase the appeal of R&D and entrepreneurship, education subsidies can improve access to education, sorting talented individuals from lower-income families to R&D and innovative entrepreneurship.