Labor Force Demographics and Corporate Innovation

FRANÇOIS DERRIEN, AMBRUS KECSKÉS, and PHUONG-ANH NGUYEN*

Abstract

Firms in younger labor markets produce more innovation. We establish this using the local labor
force projected based on historical births in each local labor market in the United States.
Successive analyses of labor markets, firms, and inventors allow us to separate out effects such
as firm and inventor life cycles. Corporate innovation activities reflect the innovative
characteristics of younger labor forces. Additionally, firms in younger labor markets have higher
valuations. Younger people as a group – inventors interacting with non-inventors – produce more
innovation for firms through the labor supply channel rather than through a financing supply or
consumer demand channel.

May 16, 2019

JEL classification: G31, J11, J21, O31

Keywords: Innovation; Demographics; Labor markets; Inventors; Firm value
*
Derrien is at HEC Paris, and Kecskés and Nguyen are at the Schulich School of Business, York University. We
greatly appreciate the comments of Pat Akey, Jean-Noël Barrot, Gennaro Bernile, Paul Calluzzo, Murat Çelik,
Pierre Chaigneau, Peter Cziraki, Olivier Dessaint, Evan Dudley, Laurent Frésard, Louis Gagnon, Jim Goldman,
Johan Hombert, Dalida Kadyrzhanova, Jun-Koo Kang, Kristoph Kleiner, Francis Kramarz, Olga Kuzmina,
Tomislav Ladika, Jennifer Li, Si Li, Evgeny Lyandres, Song Ma, Roni Michaely, Fabio Moneta, Cal Muckley,
Miguel Palacios, Tianyue Ruan, Christophe Spaenjers, Johan Sulaeman, Lingna Sun, David Thesmar, Emiko Usui,
Philip Valta, John Wald, Wei Wang, Zhao Wang, Dongling Xu, Bernie Yeung, Alminas Žaldokas, and Shan Zhao,
and seminar participants at the 2018 Asian Development Bank Conference, City University of Hong Kong, the 2019
Eastern Finance Association Conference, the 2018 European Finance Association Conference, the 2018 Financial
Intermediation Research Society Conference, the 2018 Financial Management Association Conference, the 2018
Financial Management Association Asia/Pacific Conference, Grenoble EM, the 2018 HEC Paris Workshop on
Banking, Finance, Macroeconomics, and the Real Economy, the Hong Kong Polytechnic University, the 2019 Inter-
Business School Finance Seminar, the 2019 International Conference on Technology, Demographics, and the Labor
Market, the 2018 Irish Academy of Finance Conference, McMaster University, the 2019 Midwest Finance
Association Conference, the 2018 Northern Finance Association Conference, Queen's University, the 2018 SFS
Cavalcade Asia-Pacific, the 2018 Symposium of the Spanish Economic Association, Universidad Carlos III de
Madrid, the University of Calgary, the University of Fribourg, the 2018 University of Manchester Corporate Finance
Conference, the University of Hong Kong, the University of Lausanne, the University of Piraeus, the University of
Surrey, the University of Texas at San Antonio, and the University of Toronto. Derrien acknowledges financial
support from the Investissements d'Avenir Labex (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047). This
research was supported by the Social Sciences and Humanities Research Council of Canada and the Canadian
Securities Institute Research Foundation.
 1. Introduction

Labor markets are integral to the success of firms. Indeed, the influence of the

institutional and especially legal features of local labor markets on various corporate activities is

the subject of a small but growing literature. For instance, unionization influences capital

structure, and employment protections encourage corporate innovation while discouraging

takeovers.1 We consider a more fundamental but consequential aspect of labor markets: their

demographics. The age structure of the local labor force, in particular, matters because young

and old workers are heterogeneous inputs into the firm's production function and their effect on

the firm's innovation output is plausibly different. In particular, younger people are known to be

more risk seeking, to have longer horizons, and to be more creative compared to older people.2

These characteristics tend to make younger people, and younger labor forces, more innovative.

Corporate innovation activities benefit from a younger labor force in a number of ways.

First, firms can hire from a larger pool of productive inventors. Similarly, firms can hire younger

workers who are not inventors themselves but who complement the firm's inventors in producing

innovation, e.g., technicians, developers, and managers. Furthermore, local knowledge spillovers

arising from the interactions of younger workers across firm boundaries can also increase

innovation in the local labor market as a whole.3 Overall, younger labor markets can create a

general work environment, for inventors and non-inventors alike, both within and across firms,

that results in more individual, firm, and aggregate innovation. We hypothesize that it is through

this labor supply channel that age structure affects corporate innovation.

1
Matsa (2010); Acharya, Baghai, and Subramanian (2013, 2014); and Dessaint, Golubov, and Volpin (2017).
2
See Liang, Wang, and Lazear (2017) for references.
3
This is analogous to local agglomeration effects, for example, on corporate investment, as in Dougal, Parsons, and
Titman (2015). For evidence on knowledge spillovers more generally, see Glaeser, Kallal, Scheinkman, and Shleifer
(1992), Jaffe, Trajtenberg, and Henderson (1993), Audretsch and Feldman (1996), Bloom, Schankerman, and Van
Reenen (2013), and Lychagin, Pinkse, Slade, and Van Reenen (2016).

1
 Testing this hypothesis is challenging because the direction of causality is difficult to

establish. Age structure can affect innovation activity, but innovation can also attract migration

to and from a given location, thus migration can affect age structure. Moreover, age structure

may be driven by factors that it has in common with innovation but which are unobservable.

Indeed, this endogeneity is obvious from our most basic empirical analysis. As we show,

regressions of innovation on the actual age structure of the labor force lead to inferences that are

unreliable. Since we are interested in the causal effect of local age structure on local innovation,

we need to ensure that the latter is not confounded with the former.

Our novel approach is to use the age structure of the labor force projected based on

historical births. We examine commuting zones, which are ideal units of analysis to study local

labor markets because they are designed to capture largely self-contained areas in which people

live and work. For every year and commuting zone in the United States, we reconstruct the

population of 20-64 year olds using historical births in the prior 20-64 years, adjusted for

survival. The resulting native born labor force captures the labor force in the absence of

migration to and from the commuting zone, and it is plausibly exogenous to innovation today. It

can also be viewed as an endowment of a given location that is not completely eliminated by

migration across labor markets. In our empirical analysis, we use this local endowment to

explain local innovation.4

Examination of the age structure that we use in our analysis shows that there is

significant variation in age structure across locations. However, given our relatively short sample

period (1990-2005), the age structure of the local labor force exhibits steady time trends but

4
Our focus on the native born labor force does not require that innovation be produced only by the native born labor
force. Rather, the only requirement is that the age structure of the native born labor force be the cause of such
innovation as we capture in our analysis.

2
otherwise very little time-series variation. Our results on innovation are therefore largely

identified based on cross-sectional variation in the age structure rather than time-series variation.

[Insert Figure 1 about here]

Figure 1 provides a simple but clear illustration of our empirical approach and main

finding. We plot the mean age of the projected labor force and the number of patents per capita

for every commuting zone in the U.S. in the year 2000. The results show a strong negative

relationship between age and innovation: younger labor forces produce more innovation.

Turning to our regression analysis, we first examine innovation by public and private

firms aggregated to the commuting zone level, as in Figure 1. Our regression specifications

include state-year fixed effects as well as control variables that account for factors that are

correlated with both local age structure and local innovation. Any such factors must be generated

by shocks that were present 20-64 years ago, that directly affect historical births, and that also

directly affect innovation today. To capture such factors, we control for the commuting zone's

size, wealth, growth, government expenditures, educational attainment, and university patents.

For most of the rest of our analysis, we focus on firms. With detailed firm-level data, we

can identify more precisely the channels through which innovation is affected by the age

structure of the labor force at the headquarters location of firms. Our main specifications include

firm-level control variables as well as state-year fixed effects, industry-year fixed effects, and

firm age fixed effects. The industry-year fixed effects rule out the possibility that younger labor

markets have a composition of industries with high innovation since the only remaining variation

is within a given industry in a given year. With firm age fixed effects, our results must be

interpreted as for firms of the same age, which ensures that they cannot be explained by firm life

cycle effects. At both the commuting zone and firm levels, we find that younger labor forces

3
produce more innovation, as indicated by higher patents counts and citations. For example, at the

firm level, a one standard deviation decrease in the mean age causes a roughly 7% increase in

innovation.

Since we argue that firms in younger labor markets are more innovative as a result of the

characteristics of younger people, we also examine whether their innovation activities reflect

these characteristics. To this end, we use measures of the creativity, riskiness, longevity, and

interactivity of patents. We use patent citations, both those made by and made to the patents of

our sample firms (backward and forward citations, respectively), to capture the characteristics of

the firm's innovation activities. We find that the innovation activities of firms in younger labor

markets do indeed reflect the innovative characteristics of younger people.

Our data allow us to move to an even higher level of granularity and focus on inventors

who work for public and private firms. At this level of analysis, we can control for the ages of

inventors and firms as well as firm fixed effects and inventor network scale effects. This allows

us to distinguish between inventors and other workers in the local labor force. The results do

show that younger inventors produce more innovation, but they also show that even after

controlling for inventor age and other relevant factors, inventors in younger labor markets

produce more innovation. This suggests that the interactions of inventors, whether inside or

outside of their firms, with fellow inventors or other workers in the local labor force, generate

knowledge spillovers that affect the quantity and quality of their innovation. The general work

environment appears to be important for the production of innovation.5

5
There is a small literature that documents the relationship between individual inventor age and innovation (Jones
(2010) and Jones and Weinberg (2011)). However, individual inventor age and the age structure of the labor force
are distinctly different constructs that cannot be directly compared. With each passing year, a given inventor ages by
exactly one year while accruing seniority, resources, and managerial responsibilities. This inventor-level life cycle
of innovation does not translate to the level of the labor force, which is an ever changing social group comprising
both inventors and non-inventors.

4
 Having established that the age structure of the local labor force affects the innovation

activities of local firms, we identify more precisely the channels through which this happens.

Returning to firms, we distinguish between the labor supply channel and two other channels. In

the financing supply channel, our age structure actually captures the local investor pool rather

than the local labor force. Local investors who are younger are more willing to finance risky

projects such as those that produce innovation, so firms in younger locations produce more

innovation. We are able to identify the location at which firms produce innovation, their R&D

hubs, for about half of our sample. When we include the age structure at both headquarters and

R&D hubs, R&D hubs absorb most of the effect of headquarters. Additionally, we find that age

structure has no effect on leverage. This is consistent with the labor supply channel but

inconsistent with the pure financing supply channel.

In the consumer demand channel, our age structure actually captures the local consumer

pool rather than the local labor force. Younger consumers demand more innovative products, so

the firm produces more innovation to satisfy demand for it. Separating firms based on whether

their workforce serves local versus non-local consumer demand, we find that the results are

driven entirely by firms with local employees but non-local customers. This is inconsistent with

the pure consumer demand channel.

We also find that our main result, i.e., that younger labor forces produce more innovation,

is weakest for the youngest firms, it increases in firm age, and it is strongest for the oldest firms.

This finding is inconsistent with a matching interpretation in which innovative firms start up in

younger labor markets. Rather, this finding, together with the fact that 80% of our sample firms

do not move during their lives, is more consistent with firms taking as given the age structure

and other characteristics of the local labor market and innovating as a function thereof.

5
 Finally, because innovation creates growth opportunities for firms, we examine the

relationship between labor force age structure and firm valuations. We find that firms in younger

labor markets have higher market-to-book ratios, with a one standard deviation decrease in the

mean age causing a roughly 3% increase in valuations. These results reflect the value created by

younger labor forces. We conclude that the age structure of the labor force has important

consequences for inventors, firms, and the local economy.

Our main contribution is to the nascent literature on labor and finance, which studies the

institutional and legal features of local labor markets on corporate activities. One pioneering

paper finds that workforce unionization leads firms to use leverage strategically in bargaining

over employment contracts (Matsa (2010)). Other papers in this literature study differences

across jurisdictions in employment laws that provide protections or impose restrictions. Early

papers find that lower employment risk, as captured by higher unemployment insurance benefits,

increases leverage (Agrawal and Matsa (2013)) and entrepreneurship (Hombert, Schoar, Sraer,

and Thesmar (2018)). A series of more recent papers finds that stronger wrongful discharge laws,

as proxying for firing costs, increase innovation, but they also reduce takeover synergies and

activity, leverage, and investment.6 Additionally, non-compete agreements can increase

investment by restricting labor mobility (Jeffers (2018)).

By contrast, our paper studies demographics, a more fundamental but consequential

aspect of labor markets. Specifically, we are the first to show that the age structure of the local

labor force has a causal effect on local innovation, and in so doing, we also contribute to the

literature on demographics and finance. Prior studies find that younger labor markets encourage

firm creation and growth (Ouimet and Zarutskie (2014)); firms with a younger investor base

6
Acharya, Baghai, and Subramanian (2013, 2014); John, Knyazeva, and Knyazeva (2015) and Dessaint, Golubov,
and Volpin (2017); Simintzi, Vig, and Volpin (2015); and Bai, Fairhurst, and Serfling (2017).

6
have lower payouts (Becker, Ivkovic, and Weisbenner (2011)); and product market

demographics influence stock returns (Dellavigna and Pollet (2007, 2013)).

We also make an important contribution to the literature on the macroeconomic

consequences of demographics. We examine innovation whereas prior studies examine

unemployment, aggregate output volatility, productivity, and aggregate stock returns.7 We also

contribute significant methodological improvements to the broader literature on demographics.

Some prior studies use births over a limited or recent number of years as an instrument for the

age structure of the actual labor force (e.g., only the birth rates 20-39 years prior, or only the age

structure 10 or 20 years prior). By contrast, we take a comprehensive and precise approach by

using historical births data starting from the 1920s to reconstruct the age structure of the entire

labor force in each commuting zone in the U.S.

The rest of this paper is organized as follows. Section 2 presents the methodology.

Sections 3, 4, and 5 present the analyses at the commuting zone, firm, and inventor levels.

Section 6 presents the results for firm value. Section 7 concludes.

2. Methodology

2.1. Measurement of Age Structure

Our objective is to explore and better understand the effect of the age structure of the

labor force on corporate innovation. To this end, we run regressions principally of measures of

innovation activity on measures of the age structure of the labor force at the same location as the

firms and inventors that we examine. The difficulty is that people can choose where they live and

work, and the firms at which people work can choose where they operate. Consequently, local

economic activity, including innovation, can affect the local labor force because economic

7
Respectively, Shimer (2001); Lugauer (2012) and Jaimovich and Siu (2009); Acemoglu and Restrepo (2018); and
Poterba (2001) and Goyal (2004).

7
conditions affect the migration of people. This can be a serious problem if the population and the

economy are measured contemporaneously.

For this reason, we do not use the actual labor force to measure age structure but rather

the labor force projected based on historical births. Births in a given time and place occur for a

variety of reasons that may be correlated with or even caused by contemporaneous economic

activity, but these reasons are plausibly exogenous to economic activity occurring several

decades later. At the same time, the historical births over a long period of time are an integral

component of the age structure today. However, the age structure of the projected labor force is

plausibly uncorrelated with innovation (and indeed most economic activities) today, except

through its effect on the actual age structure. As an identity, the current labor force equals

historical births plus immigration minus emigration, thus the projected labor force is free from

the effect of migration, which is likely correlated with contemporaneous economic activity.8

We construct our measures of age structure as follows. For every year and location in the

United States, we use historical births in the prior 20-64 years to reconstruct the labor force that

year, i.e., the population of 20-64 year olds. For example, in 1990, a person born in 1926 will be

64 years old, and a person born in 1970 will be 20 years old. We therefore use the historical

births from 1926 to 1970 to project the labor force in 1990. We adjust for survival for each age

group using national time-varying survival rates every decade. We then use the projected labor

force in 1990 to construct our measures of the age structure in 1990. Our sample begins in 1990

because we need data on historical births to project the current population for up to 64 years of

age, and births data at the county level only become well populated in the mid-1920s. Our

8
We note that the native born labor force of a commuting zone necessarily excludes Americans born outside the
commuting zone as well as foreigners.

8
sample ends in 2005 because we examine future innovation for up to five years, and the patent

data end in 2010.

We use the age structure of the labor force projected based on historical births directly

rather than as an instrument for the age structure of the actual labor force. Unlike the prior

literature, we do not take an instrumental variables approach because the exogenous component

of the actual labor force is the native born labor force, and this is precisely what we measure with

the labor force projected based on historical births. Indeed, the projected labor force itself is our

exogenous variable of interest, so we do not use it as an instrument.9

2.2. Empirical Examination of Age Structure

We examine the historical births data that we use to construct our measures of age

structure. We collect data for historical births at the county level starting in 1926. These data are

from the Vital Statistics Yearbooks supplemented with and manually checked against data from

Price Fishback for the early years of our sample period.10 Similarly, we obtain population data at

the county level from the Bureau of Economic Analysis. Altogether, the historical births data for

our sample period span 1926-1985 (all the years needed to construct the projected labor force,

i.e., the population of 20-64 year olds, during our entire sample period, i.e., 1990-2005). To

allow us to make not only time-series but also cross-sectional comparisons, we focus on the

9
There are a few studies of other consequences of the age structure (especially unemployment and aggregate output
volatility) that instrument for the current age structure in various ways. Some studies use as an instrument the sum of
state-level birth rates over a limited number of prior years: Shimer (2001) during the 16-24 years prior, and Lugauer
(2012) during the 20-34 years prior. Somewhat differently, Jaimovich and Siu (2009) use country-level birth rates
two to six decades before but at intervals of a decade (i.e., for a total of five observations). Additionally, prior
studies measure the labor market at the level of the state or country. We are able to significantly improve upon
existing approaches in a number of ways by using the entire native born local labor force in our analysis. First, we
have births data on the entire labor force, not just a limited and recent number of years thereof. Second, we directly
measure the age structure of the native born labor force, rather than having to instrument the age structure of the
actual labor force with a small sample of births. Finally, we study local labor markets directly using commuting
zones, instead of studying heterogeneous local labor markets aggregated into states or countries.
10
See Fishback et al. (2011) as well as Price Fishback, Jonathan Fox, Shawn Kantor, and Michael Haines, County
births, deaths, infant deaths, and stillbirths, 1921-1929+A4, and also Price Fishback, Shawn Kantor, Trevor
Kollman, Michael Haines, Paul Rhode, and Melissa Thomasson, Weather, demography, economy, and the New
Deal at the county level, 1930-1940.

9
census region level in our next analysis.11 We detrend the data, for ease of exposition, by

removing the annual average across census regions using year fixed effects.

[Insert Figure 2 about here]

Figure 2 provides a graphical description of the annual birth rates for each census region.

The birth rate is measured per thousand people. As a basis of comparison for the regions, the

national birth rate fluctuates considerably over the decades, ranging from roughly 15 to 26 births

with a mean of approximately 20.

Several features of the figure have important implications for our analysis. First, there is

considerable time-series variation in birth rates, from one decade to the next, in a given location.

There is also considerable cross-sectional variation in birth rates at any point in time. This

implies that, decades later, there should be significant variation in the age structure across

locations. Second, since birth rates vary considerably over time in a given location, periodically

reverting to the cross-sectional mean (i.e., the mean across all regions in a given year), the

proportion of the young versus the old (which completely determines the age structure) also

varies over time. It is therefore unlikely that the cross-sectional differences in the projected age

structure (i.e., based on historical births) are driven decades later by time-invariant heterogeneity

across locations (e.g., persistent differences in economic activity).

We examine in detail the age structure at the center of our analysis, which we measure at

the commuting zone level. Commuting zones are ideal economic-geographic units to study the

effect of demographics on innovation. Popular in labor economics, they are designed to capture

the local labor market in which people live and work (Tolbert and Sizer (1996)). Indeed, they are

constructed as clusters of counties characterized by strong labor market interactions within

11
The census regions allow us to visually represent the entire country with a manageable number of units compared
to the 50 states that are sorted into the four census regions. The nine census divisions lead to the same inferences,
but their visual representation is more complicated.

10
commuting zones and weak interactions across commuting zones (Autor and Dorn (2013)).

There are 741 commuting zones that together cover the entire land area of the U.S.

We aggregate counties to commuting zones using the county-commuting zone crosswalk

from Autor and Dorn (2013). We use two measures of age structure that are also widely used in

the literature. The first is the mean age of the labor force, which has the advantage of being very

simple. The second measure is the "young share" of the labor force, where the young are defined

as the population of 20-39 year olds. This measure has the advantage of comparing the size of

our specific group of interest, the young in the labor force, to the size of the entire labor force,

i.e., the young plus the old.

We first examine the evolution of the raw age structure during our sample period. We

focus on the mean age of the labor force rather than its young share. The results for both

measures of the age structure are similar, but the mean age is perhaps more natural to interpret

than the young share. Furthermore, while our analysis generally examines the labor force at the

commuting zone level, in this case we focus on the census division level. Doing so allows us to

visually represent the entire country with a manageable number of units compared to the 50

states that are sorted into the nine census divisions. We should note that our results are similar at

more granular levels (e.g., at the state or commuting zone levels).

[Insert Figure 3 about here]

Figure 3 shows the mean age of the labor force for each census division. Panel A shows

the labor force projected based on historical births, which is the focus of our analysis throughout

the paper, and Panel B shows the actual labor force. Several patterns emerge. First, even at the

division level, without examining more granular levels, there is considerable cross-sectional

variation in the data. These patterns are similar for the projected and actual labor forces. Second,

11
the U.S. is steadily becoming older over time, for every division of the country. The steadiness of

this aging process implies that there is very little time-series variation in age structure at the

division level (or even at the commuting zone level, as we verify), and such time-series variation

as exists can be captured by a steady time trend.

Next, we compare the evolution of the mean age of the projected and actual labor forces

for each census division. Given the findings of Figure 3, we detrend the mean age, removing the

annual average across census divisions using year fixed effects, and standardize it at the census

division level, subtracting the mean and dividing by the standard deviation. As a result, within

each census division, we are comparing projected and actual labor forces both of which have a

mean of 0 and a standard deviation of 1.

[Insert Figure 4 about here]

Figure 4 shows that the projected and actual labor forces generally follow the same

direction over time. This provides validation for our use of the age structure projected based on

historical births. Indeed, the correlation between the projected and actual age structures is

approximately 0.5, which indicates that historical births explain a significant part of the current

labor force. The difference between projected and actual labor forces is migration, which is

modest (about 3% per annum across states since the late 1940s, the starting point of the data).

To summarize the results of our empirical examination of age structure, the projected and

actual labor forces are similar in terms of age structure patterns, across both locations and time.

Moreover, there is considerable cross-sectional variation, with age structure varying significantly

from one location to another. However, the age structure exhibits steady time trends but

otherwise very little time-series variation.

12
 These results have important implications for our regression analysis. First, given the

steady time trends in age structure, it seems reasonable to use one observation for every five-year

period, i.e., quinquennially. This is especially the case for our firm- and inventor-level analyses

since firms and inventors typically exist in the data for only a few years.12 Second, it is

impractical to identify entirely off the time-series variation in age structure. Instead, we identify

off the cross-sectional variation because it accounts for most of the total variation. Since

unobservable cross-sectional and time-series factors can potentially affect innovation, we always

include state-year fixed effects to absorb them (as well as industry-year fixed effects, firm age

fixed effects, and control variables, whenever appropriate). We thus identify off the residual

variation across commuting zones within a given state in a given year (and considerably less

residual variation in general since we include additional fixed effects and control variables).13

2.3. Measurement of Innovation

We use two main measures of innovation corresponding to the quantity and quality of

innovation: patent counts and patent citations. These measures are defined as in the literature

(see Appendix Table 1 for details). In our commuting zone-level analysis, we scale patents by

the population of the commuting zone. However, in our firm-level analysis, we use unscaled

patents following the large literature on firm-level innovation. We obtain data on patents, patent

assignees (firms), and patent inventors during 1975-2010 from Li et al. (2014). To identify firms

that are publicly traded, we merge these data over the same period with data from Kogan,

Papanikolaou, Seru, and Stoffman (2017). The primary source of both databases is the patent

data of the USPTO.

12
Our approach of using quinquennial or decennial observations is similar to that of Becker (2007) and Becker,
Ivkovic, and Weisbenner (2011)).
13
We would ideally like to have several decades of data on the projected age structure and innovation, and then
study the effect of the former on the latter while controlling for time and location fixed effects. Unfortunately, the
requisite historical births data do not exist before the 1920s, to our knowledge.

13
 There are two important adjustments that we make. First, we adjust patent citations for

the changing distribution of patent citations each year by scaling citations in a given year by the

average number of citations per patent that year. This is necessary to solve the problem of

patents granted later in time having fewer citations at the end of our sample period.

Second, in our inventor-level analysis, we adjust patent counts and citations by the

number of inventors of the patent. This is necessary for apportioning credit because most patents

are granted to more than one inventor (in fact, three inventors, on average).14 Specifically, for a

patent with N inventors, we give each inventor credit for 1/N patents and 1/N of the patent's

citations.

2.4. Levels of Analysis and Model Specifications

We perform our analysis principally at the commuting zone, firm, and inventor levels,

which we explain in turn below. Our main analyses have a number of common features. We run

regressions of innovation outcomes on age structure. Our measures of age structure are

constructed using the projected labor force in the commuting zone. Since age structure is

persistent, we use four quinquennial observations in our main regressions, from 1990 to 2005,

rather than annually.15 Since both age structure and innovation may have variation in common

across space and time, we also include state-year fixed effects to remove such variation.

We examine the effect of the current age structure on future innovation, in the short run

and the long run, measured the next year and the average of the next five years, respectively.

This is necessary because innovation activities can take several years to produce results, so long-

run regressions may be appropriate. Moreover, innovation outcomes are relatively infrequent at

14
In commuting zone- and firm-level analyses, this is not an issue. It is rare for a patent to have inventors located in
different commuting zones or working for different publicly traded firms in our sample, so there are few patents that
would be duplicated if we did not adjust for the number of inventors.
15
The results are similar regardless of which year from 1990 to 1994 we use to start the quinquennial periods.

14
the one-year horizon (e.g., in smaller commuting zones or for younger firms), so averaging the

outcomes of several years generates more precise estimates than only using a single year.

3. Commuting Zone-Level Analysis

3.1. Model Specification

We begin our analysis at the commuting zone level. In this analysis, the equation for the

baseline regressions is:

Innovationc,s,t+1 = α·Age_Structurec,t + β·Xc,t + δs,t + ε (1)

where c indexes commuting zones, s indexes states, and t indexes years. Xc,t is a vector of

commuting zone-level control variables, and δs,t is a state-year fixed effect. The location of

innovation is determined by the address on the patent document. The state-year fixed effects in

our regressions capture much of the variation across locations and time. Such variation as

remains is within a given state in a given year but across commuting zones. Our results must

therefore be interpreted as estimating the extent to which the variation in age structure across

commuting zones explains the variation in innovation across commuting zones – in both cases,

within a given state in a given year.

Since the age structure in all locations exhibits steady time trends but otherwise very little

time-series variation, we do not include commuting zone fixed effects in our main specifications.

As shown in Section 2.2 above, historical birth rates, which determine the age structure of the

native born labor force, vary significantly over time in every location: it is not the case that the

native born labor force in some locations is always younger than in other locations. Therefore, it

is unlikely that the relationship between age structure and innovation is driven by time-invariant

factors, with some locations being always younger and more innovative than others. However, as

a robustness test, we do include commuting zone fixed effects in slightly modified regression

15
specifications, in Section 3.3 below. We find that time-invariant commuting zone factors are

unlikely to explain our results incrementally to our control variables.

We also account for factors that may be correlated with both the age structure of the

native born labor force and innovation. In the context of our analysis, these factors can be time-

varying or time-invariant, but they must meet very specific requirements. First, they must be

generated by shocks that were present 20-64 years ago. Second, these shocks must directly affect

historical births and hence age structure today. Third, these shocks must also affect innovation

today (above and beyond any indirect effect they may have on innovation today through their

effect on historical births and hence age structure today). Ideally, we would like to measure such

shocks directly when they were present 20-64 years ago and then aggregate them to capture their

effect today. In our main specifications, we use control variables that are contemporaneous to

age structure and innovation but which may capture the effect of shocks that were present 20-64

years ago. We do so for simplicity and because our control variables are slow-moving. In

robustness tests, we use their average value over 20 years and find similar results.

Two factors come to mind that may meet the aforementioned requirements: economic

conditions and certain types of long-term investments. First, we account for local economic

conditions using three standard control variables. We control for the size of the population today

because it reflects the cumulative long-term effect of shocks to the local economy. These same

shocks can also affect both historical births and innovation today. By way of example, better

economic performance 20-64 years ago attracts more people to the commuting zone and also

encourages people to have more children. This increases the size of the population and it also

affects age structure today. At the same time, the greater scale of the commuting zone today may

stimulate more business activity, including the production of innovation. Furthermore,

16
population size is fairly persistent over time, so it also captures time-invariant features such as

urban versus rural nature of the commuting zone, its vibrancy, diversity, etc. (e.g., Dougal,

Parsons, and Titman (2015)), which can affect both age structure and innovation. Motivated by

the same reasoning, we also control for income per capita as a proxy for wealth, and the growth

rate of total income to capture economic growth.

Second, certain types of long-term investment, particularly in infrastructure, education,

and research, can affect contemporaneous economic conditions, hence migration and births, and

ultimately age structure in future decades. Through its additional effect on future economic

conditions, such investment can also affect future innovation. We account for such local

investment using another three control variables. We control for government expenditures

because, by way of example, greater spending, whether on infrastructure, education, research, or

other goods and services, can directly lower the costs of having children. It can also create jobs,

which indirectly encourages people to have children. In both cases, government expenditures can

affect contemporaneous births and hence the future age structure of the commuting zone. They

can also affect the future climate for business endeavors, including innovation.

The two other control variables that we use are the long-term consequence of (public and

private) investments in education and research. Specifically, we control for educational

attainment, as measured by the ratio of people with a bachelor's degree or higher to the

population aged 25 years or older, and local university patent counts per capita. In the same

manner as we already described, investments in education and research made 20-64 years ago

can affect historical births and hence the age structure today, and they can also affect the

business atmosphere today and hence the production of innovation. However, investments in

education also affect innovation today by providing people with the knowledge, skills, and

17
training needed to produce innovation. Moreover, investments in research also affect innovation

today through the typically substantial spillovers between educational institutions and the private

sector. Overall, our control variables should capture most factors that may be correlated with

both age structure and innovation.

We obtain data for our control variables from the Census Bureau and the patent database.

We weight each commuting zone by the size of its labor force to account for the relative

economic importance of commuting zones. We cluster standard errors by state-year, but the

results are robust to clustering by commuting zone. We winsorize variables whenever

appropriate at the 1st and 99th percentiles.

3.2. Sample and Descriptive Statistics

[Insert Table 1 about here]

The firms in our sample are the public and private firms in the patent database. The

sample itself comprises 2,964 commuting zone-quinquennial period observations corresponding

to 741 unique commuting zones. Requiring data on historical births decreases the sample size

slightly, to 2,748 observations. This is because Alaska and Hawaii are completely missing the

requisite data owing to their late admission to the Union (in 1959), and South Dakota and Texas

are mostly missing the requisite data during the first quinquennial period. Table 1 provides

descriptive statistics for the samples corresponding to our various levels of analysis starting with

the commuting zone level of immediate interest (Panel A). The age structure is comparable

across all three levels of analysis. The typical age of the labor force is about 40 years, and the

young share is roughly 50%.

We report descriptive statistics on innovation not only here in the commuting zone-level

analysis but also in our firm- and inventor-level analyses. However, we note here that, for a

18
number of reasons, innovation is difficult to compare across levels of analysis. First, each level

of analysis corresponds to a different degree of aggregation of patents. Some commuting zone-

years have no firms associated with them, while others have multiple firms. This is also the case

for inventors. Second, only star inventors are used by construction at the inventor level, whereas

all inventors are used at the other two levels. Third, the number of patents is adjusted for the

number of inventors but only at the inventor level. Finally, patents are scaled by population but

only at the commuting zone level. Within each level of analysis, whether we use a one-year or

five-year horizon, the distribution of patents is similar on an annual basis. There are

approximately 10 patents per annum on average (median 5) at the commuting zone-year level

(per hundred thousand people).

3.3. Results

We consider regression specifications with various combinations of our six control

variables to allow us to examine the sensitivity of the results to particular control variables.

These combinations are as follows: the three control variables for economic conditions

(population size, income per capita, and growth rate of total income), then each of three

additional control variables (government expenditures, educational attainment, and university

patent counts), and finally all six control variables.

[Insert Table 2 about here]

Table 2 presents the results, with the mean age measure of age structure in Panel A and

the young share measure in Panel B. The results consistently show that younger labor forces

produce more innovation. Panel A indicates that a one-year decrease in the mean age causes a

roughly 10% increase in patents-to-population, whether counts or citations. For a one standard

deviation decrease (2.3 years), patents increase by 25%-30% relative to their mean and by a

19
somewhat smaller 20% or so compared to their standard deviation. Panel B indicates that a one

percentage point increase in the young share causes a roughly 3% increase in patents. For a one

standard deviation increase (8.5 p.p.), patents again increase by 25%-30% relative to their mean

and about 20% compared to their standard deviation. Overall, the results for age structure are

similar across all specifications (even in terms of the magnitude of the coefficient estimates),

whether we examine the short run or the long run (the next year or the average of the next five

years, respectively).

Like age structure and innovation, the control variables that we use are time-varying but

slow-moving, so it should be sufficient to measure them in the single year at the beginning of

each quinquennial period. Nevertheless, since the factors that we are trying to capture must have

been generated by shocks that were present 20-64 years ago, we examine the robustness of our

results to measuring our control variables over a longer period of time. We rerun the regressions

in the last four columns of Table 2, but rather than measuring our control variables in a single

year, we use their average value during the 20 years ending at the beginning of each

quinquennial period. We use a 20-year window both because it is reasonably long and because

the data are limited in time.16 In untabulated results, the coefficient estimates decrease by about

15%-20% in magnitude, but they remain significant at the 1% level.

Overall, the plausibly exogenous projected age structure reliably leads to the inference

that younger labor forces are more innovative. We examine whether this is the case for the

endogenous actual age structure. To facilitate comparison, we include the control variables in the

same sequence as before. We tabulate the results for the mean age in Appendix Table 2 Panel A;

the untabulated results for the young share are similar. By contrast to the projected age structure,

16
The data for size and wealth only begin in 1969, for growth in 1970, for government expenditures in 1972, for
educational attainment in 1980, and for university patents in 1975. We go back as far as possible for up to 20 years,
which is entirely possible by the time of our final two quinquennial periods.

20
which has a reliably negative effect on innovation in all specifications, the actual age structure

leads to inferences that are unreliable. Depending on the control variables included, the partial

correlation between the actual age structure and innovation is negative, positive, or insignificant.

A detailed study of the actual age structure is beyond the scope of this paper.

Nevertheless, we do directly compare the effects of the projected and actual age structures. This

allows us to characterize the endogeneity of the actual age structure, and specifically the role of

migration. To this end, we combine each of the corresponding regressions in Table 2 and

Appendix Table 2 Panel A into a single regression. In so doing, we capture both the effect of the

native born labor force on innovation as well as the incremental relationship between the migrant

labor force and innovation. Appendix Table 2 Panel B shows that the coefficient estimates for

the projected age structure are very similar to those in Table 2, while the coefficient estimates for

the actual age structure are consistent with those in Appendix Table 2 Panel A. Once again, the

projected age structure is reliably negative, whereas the actual age structure is unreliable. Based

on the full specification (all control variables included), which shows coefficient estimates for

the actual age structure that are positive, it appears that older migrants tend to move to more

innovative locations.

4. Firm-Level Analysis

4.1. Model Specification

Our second analysis is at the firm level. We have detailed data on thousands of publicly

traded firms, so we can control for a variety of firm-level characteristics and thus improve our

model specification. We can also refine the interpretation of the results. Specifically, we can

examine industry composition effects (more innovative industries matching to younger labor

markets) and firm composition effects (more innovative firms matching to younger labor

21
markets). We can also rule out firm life cycle effects (younger firms being more innovative

rather than younger labor forces). We can also identify more precisely the channels through

which age structure affects innovation.

In our firm level analysis, the equation for the baseline regressions is:

Innovationi,j,a,c,s,t+1 = α·Age_Structurec,t + β·Xi,t + δs,t + δj,t + δa + ε (2)

where i indexes firms, j indexes industries, a indexes firm age, c indexes commuting zones, s

indexes states, and t indexes years. Xi,t is a vector of firm-level control variables, δs,t is a state-

year fixed effect, δj,t is an industry-year fixed effect, and δa is a firm age fixed effect. We use

publicly traded firms, which account for roughly half of all patents granted to public and private

firms together.

We measure age structure for firms using the commuting zone in which they are

headquartered. We use headquarters location because firms tend to locate their R&D hubs, at

which they produce innovation, close to their headquarters rather than dispersing them

geographically (Howells (1990) and Breschi (2008)). We confirm this stylized fact for publicly

traded firms in our sample. An R&D hub is any location in which there is at least one inventor

working for the firm during the prior ten years. We find that about 50%-75% of a firm's

innovation is produced in the commuting zone of its headquarters (details later). In most tests,

we use headquarters rather than R&D hubs because, on balance, the former measure location

more cleanly than the latter. In particular, given the definition of R&D hubs, their measurement

may be stale and sparse. Moreover, since we are interested in the general work environment, we

need to capture not just the location of inventors but also of non-inventors, both inside and

outside the firm.

22
 In firm-level regressions, we also include firm-level control variables, industry-year fixed

effects, state-year fixed effects, and firm age fixed effects. The control variables are total assets,

market-to-book, cash flow-to-total assets, stock returns, and stock return volatility. Both age

structure and innovation may have common variation across industries and time, so we remove

such variation using industry-year fixed effects, where industry is captured by two-digit SIC

codes. If the effect of age structure on innovation at the commuting zone level is driven by more

innovative industries tending to be in younger locations, then this effect should disappear at the

firm level if we include industry-year fixed effects. If this effect does not disappear, then we can

rule out the possibility of industry composition effects. Moreover, these fixed effects allow us to

mitigate the biases in the patent data reported by Lerner and Seru (2017) along the dimensions of

time, industry, and location.

Similarly, both age structure and innovation may have variation in common across

different levels of firm age (e.g., Adelino, Ma, and Robinson (2017)). For instance, firms and

their locations may become older and less innovative over time. Firm age as a control variable

may not completely capture firm life cycle commonalities because the relationship may not be

linear, so we instead include firm age fixed effects as captured by five-year groups of firm age in

a piecewise linear fashion. Consequently, our results must be interpreted as for firms of the same

age. We measure firm age from the date the firm begins trading publicly in CRSP both because

this is standard practice and because firm founding dates are not widely available. Finally,

standard errors are clustered by industry-year, but the results are robust to clustering by firm.

4.2. Sample and Descriptive Statistics

The firms in our sample are publicly traded U.S. operating firms excluding financials and

utilities. The sample itself comprises 15,730 firm-quinquennial period observations

23
corresponding to 8,002 unique firms and 321 unique commuting zones. Roughly 40% of firms

have at least one patent sometime during the next five years. At this level of analysis, we do not

restrict the sample to firms in the patent database. Data on publicly traded firms are from CRSP

and Compustat. Returning to our descriptive statistics in Table 1, there are about 5 patents per

annum on average (median 0) at the firm-year level.

4.3. Baseline Results

[Insert Table 3 about here]

Table 3 presents the regression results, with the mean age in Panel A and the young share

in Panel B. The results confirm that younger labor forces produce more innovation. A one

standard deviation decrease in the mean age (2.2 years) causes at least a roughly 7% (=0.03×2.2)

increase in patents, whether counts or citations (Panel A). Similarly, a one standard deviation

increase in the young share (8.4 percentage points) causes at least a 7% (=0.8×0.084) increase in

patents (Panel B). The results are once again similar in the short run and the long run (on the

basis of patents per annum). Since the results at the firm level, with industry-year fixed effects,

are similar to the results at the commuting zone level, which are necessarily without industry-

year fixed effects, we can rule out the possibility of industry composition effects. Similarly, we

can rule out a firm life cycle interpretation of our results because our firm age fixed effects force

our results to be interpreted as for the firms of the same age.

As already explained, it is impractical to completely remove the cross-sectional variation

in age structure and rely entirely on its time-series variation. The situation is obvious at the

commuting zone level: both age structure and patent outputs are persistent at the annual

frequency, and the sample period (1990-2005) is relatively short. To demonstrate this

empirically, we rerun the regressions in Table 2 but at the annual frequency and using as

24
explanatory variables only commuting zone fixed effects and year fixed effects. These two fixed

effects by themselves explain 91%-93% of the variation in innovation at the one-year horizon

and 96%-97% of the variation at the five-year horizon. The extreme explanatory power of these

fixed effects is less likely to be an economic regularity than a statistical artifact of regressing one

persistent variable on location and time fixed effects using a relatively short sample period. Our

findings would likely be very different if we had a sample spanning at least several decades.

The situation is similar at the firm level but less dire because there is greater time-series

variation in patent outputs for firms than for commuting zones. We rerun the regressions in Table

3 (including all control variables and fixed effects) but at the annual frequency and adding

commuting zone fixed effects. Panels A and B of Appendix Table 3 show that our results are

similar, if not as strong, if we identify entirely off the time-series variation within commuting

zones (and within state-years, industry-years, and firm age groups). We also rerun the same

regressions but replacing commuting zone fixed effects with even more demanding firm fixed

effects (which subsume commuting zone fixed effects). Panels C and D of Appendix Table 3

show that our results always have the correct sign, their magnitude is smaller though still

respectable, but they are not always statistically significant.

Furthermore, firm-level control variables are more precise at explaining corporate

innovation than commuting zone-level control variables. This is why we use the former rather

than the latter in our firm-level regressions. Nevertheless, to be conservative, we include our

commuting zone-level control variables in our firm-level regressions. Appendix Table 4 Panels

A and B show that our results are robust to their inclusion.

Turning to urban versus rural commuting zones, the population size control variable

makes it unlikely that our results would be driven by the most populous commuting zones.

25
However, we examine this possibility directly by dropping the 10, 25, and 50 most populous

commuting zones. These filters respectively eliminate approximately 25%, 40%, and 55% of the

population of the country. Nevertheless, our results are robust to their exclusion, as illustrated by

Panels C and D of Appendix Table 4 (dropping the 50 most populous commuting zones).

Regarding the measurement of firm age, we use listing dates rather than founding dates,

but this is unlikely to generate very much measurement error because firms tend to go public

when they are young. However, we can examine whether the accuracy of our firm age measure

matters for our results. We obtain data on founding dates for some publicly traded firms from

Jovanovic and Rousseau (2001) and for many IPOs from the Field-Ritter database (Field and

Karpoff (2002) and Loughran and Ritter (2004)). These data cover about 80% of the full sample

of firm-years. We rerun the regressions in Table 3 using founding dates rather than listing dates.

Appendix Table 4 Panels E and F show that the results are similar.

We also consider the possibility that managerial age affects innovation. Younger

managers may be more prevalent in younger labor markets, and firms may produce more

innovation as a result of managerial characteristics rather than the characteristics of the labor

force. For example, Acemoglu, Akcigit, and Celik (2017) find a small positive association

between executive age and creative corporate innovation. To isolate the effect of the age

structure of the labor force from managerial age, we add CEO age as a control variable in our

regressions using data from Execucomp. Panels G and H of Appendix Table 4 confirm that our

results are robust to controlling for managerial age. Additionally, younger CEOs are associated

with more innovation (not tabulated). Our results for age structure are consistent with firms

producing more innovation as a result of innovative younger labor forces rather than innovative

younger managers.

26
 Finally, we examine whether our results are impacted by complementarity between

younger and older people (e.g., between the creativity of the young and the experience of the

old). It is possible that innovation is affected not only by the age of the typical worker in the

labor force but also by the dispersion of the age of workers. While complementarity could be

beneficial, it may also be detrimental, if a more dispersed age structure leads to coordination

problems, culture clash, etc. between younger and older workers. We are therefore agnostic

about the impact of age structure dispersion on innovation. We add a control variable in our

regressions for age structure dispersion, which we measure as the coefficient of variation of age

structure (the standard deviation divided by the mean). In Appendix Table 4 Panels I and J, the

effect of age structure dispersion on innovation is negative (not tabulated), and the effect of the

mean age and young share is similar to our main specification.

4.4. Innovation Characteristics

The premise of the labor supply channel is that younger labor forces are more innovative

as a result of the various aforementioned characteristics of younger people: they are more

creative, are willing to take more risk, have longer horizons, and are more socially interactive. If

this is the case, these characteristics should be reflected in the innovation activities of firms in

younger labor markets. We therefore examine the corresponding characteristics of patent

outputs: creativity, riskiness, longevity, and interactivity. To this end, we develop a number of

novel measures of innovation activities.

To capture these characteristics, we use patent citations. This restricts our sample to the

roughly 40% of firms that have at least one patent sometime during the next five years. We use a

five-year horizon because many firms do not have a patent every year. Furthermore, we use two

types of citations: backward citations, which refer to citations made by a patent to previous

27
patents, and forward citations, which refer to citations made to a patent by future patents.

Moreover, all of our measures are suitably adjusted (see Appendix Table 1 for details) to ensure

their precision (especially so that they do not mechanically increase in the number of citations)

and to address the limitations of the patent data (particularly truncation).

Our measures of the first characteristic of younger people, creativity, are based on the

requirement that inventions can be patented only if they are useful and novel. We have three

measures of creativity, of which the first two capture usefulness and the third captures both

usefulness and novelty. The first measure is the mean number of forward citations per patent.

The second is the proportion of a firm's patents in the top 1% of forward citations.17 The third is

the proportion of a firm's patents in both the top 10% of forward citations (i.e., the most useful)

and the bottom 10% of backward citations (i.e., the most novel).18

Riskiness, our measure of the second characteristic, is the volatility of forward citations

per patent. The underlying intuition is that the dispersion of citations per patent of the firm's

patent portfolio provides an estimate of the ex ante risk of the firm's innovation activities.

Longevity, our measure of the third characteristic of younger people, is the mean age of the

newest forward citation per patent, where citation age is measured relative to the grant year. The

underlying intuition is that longer-lived inventions should continue to be cited for many years.

The length of time over which a firm's patent portfolio is cited provides an estimate of the ex

ante horizon of the firm's innovation activities. To ensure that this measure does not simply

capture the number of forward citations of a patent, we scale this variable calculated for a given

17
The top 1% of patents by citations has roughly nine times as many citations as the average patent in the same
grant year cohort.
18
Patents in the top 10% of forward citations have roughly three times as many citations as the average patent in the
same grant year cohort, and the average patent has roughly six times as many citations as patents in the bottom 10%
of backward citations in the same grant year cohort. Our results are robust to independently lowering the thresholds
for forward and backward citations (e.g., from 10% to 20% or 30%).

28
firm by the mean of the same variable calculated using all patents in the same grant year cohort

and citation decile.

Interactivity, our measure of the final characteristic of younger people, is the mean

proportion of backward citations of a firm's patents to patents in the firm's commuting zone. The

underlying intuition is that greater interaction within local labor markets should generate more

local knowledge spillovers. The extent to which a firm's patent portfolio makes local citations

provides an estimate of the ex ante degree of local knowledge incorporated into the firm's

innovation activities. To ensure that our measure does not simply capture the general popularity

of the firm's commuting zone, we exclude self citations and we scale this variable by the mean

proportion, in the same grant year cohort, of backward citations of all patents in all commuting

zones to patents in the firm's commuting zone.

We construct our measures to reflect the characteristics of younger people that lead them

to be more innovative. However, to check that it is only our measures that matter, not all

measures based on patent citations, we use two other popular measures. These measures are the

originality and generality of patents, and they are defined, following the literature, as the

dispersion, respectively, of backward and forward citations across technology classes (see

Appendix Table 1 for details). It is not clear whether they should increase or decrease in the age

structure of the local labor force. Younger and thus less experienced inventors might choose to

concentrate on a few technology fields in great depth, or they might instead diversify across

many fields. Their inventions might correspondingly attract attention from the few fields on

which they focus, or from a wide variety of fields across which they spread themselves. Even

though these variables have ambiguous predicted effects, they are useful as placebos.

29
 We run the same regressions as in Table 3 but using innovation characteristics instead of

innovation outputs. Here as elsewhere, the dependent variables are bounded below by zero and

typically right skewed, so we take their natural logarithms. We make an exception for longevity,

originality, and generality because they are symmetrically distributed. Before taking the

logarithm of a variable that takes on zero values, we add a small constant that approximately

equals the smallest increment of the values of the variable.

[Insert Table 4 about here]

Table 4 shows that younger labor forces produce innovation outputs that reflect the

innovative characteristics of younger labor forces. In both panels, a one standard deviation

change in age structure (i.e., a decrease in the mean age or an increase in the young share) causes

at least a roughly 6% increase in creativity, a 10% increase in riskiness, a 5% increase in

longevity (relative to the standard deviation of the dependent variable), and a 16% increase in

interactivity. By contrast, the placebo measures, originality and generality, are not significant,

which suggests that only our specific measures reflect the innovative characteristics of younger

people, not all measures based on patent citations.

4.5. The Alternative Financing Supply Channel

Our results so far are consistent with the labor supply channel. In this channel, younger

people are more innovative, and firms in younger labor markets are able to hire younger workers

who in turn produce more innovation for firms. Nevertheless, it is possible that our results are

consistent with an alternative financing supply channel in which the age structure measures

capture the local investor pool rather than the local labor force. Younger people tend to invest in

more risky assets than older people,19 and investors in general tend to hold relatively more of

19
Fagereng, Gottlieb, and Guiso (2017) find that, as people age, they reduce the share of their portfolio invested in
stocks. Betermier, Calvet, and Sodini (2017) find that older people shift their stock portfolio from higher risk to

30
their portfolio in local firms (e.g., Coval and Moskowitz (1999)). This implies that younger local

investors are more willing to finance the type of risky projects that produce innovation, so firms

in younger locations produce more innovation. In this financing supply channel, it is younger

investors who cause greater innovation.

To the extent that we can separate the locations of inventors and investors, we can test

whether our results are explained by the labor supply or financing supply channel. We achieve

this separation by using the firm's R&D hubs to proxy for the location of its inventors and by

using the firm's headquarters to proxy for the location of its investors. The tradeoff that we have

to make is to use a smaller sample because R&D hubs are identified based on the patent

database, so we only have location data for R&D hubs for about half of our full sample of firm-

years.

Comparing the number of inventors located at R&D hubs and headquarters in the same

commuting zone, we find that the mean and median proportions are both approximately 50%.

Assuming that firms without identified R&D hubs undertake their R&D activities at

headquarters, the proportion rises to a mean of 75%. Overall, R&D hubs do tend to be located in

the same commuting zone as headquarters, but there is meaningful dispersion of R&D hubs

compared to headquarters.

[Insert Table 5 about here]

For the sample of firms for which we have location data for R&D hubs, we verify that

our baseline results hold. We rerun the regressions in Table 3 for this subsample using the age

structure at headquarters. Panels A and B of Table 5 show that the results are similar to our

baseline results (Table 3).

lower risk stocks. Others find that the share of old people in the population is associated with a greater supply of low
risk investments and financing such as bank deposits (Becker (2007)) as well as greater dividend payments to
shareholders by local firms (Becker, Ivkovic, and Weisbenner (2011)).

31
 We then examine the extent to which our results are driven by the labor supply and

financing supply channels. We calculate the weighted average age structure of the firm across its

R&D hubs just like we calculate its age structure at its headquarters but using the number of

inventors at each R&D hub as weights. We rerun the regressions in Table 3 but include the age

structures at both headquarters and R&D hubs.

The results are presented in Panels C and D of Table 5. The age structure at headquarters

still affects innovation, but it is economically less significant and not always statistically

significant. By comparison, the age structure at R&D hubs is similar in economic and statistical

significance to our baseline results (Table 3) and indeed absorbs most of the effect of the age

structure at headquarters (Table 5 Panels A and B). The fact that headquarters is still significant

alongside R&D hubs is likely due to the fact that the firm's innovation output is not produced by

the firm's inventors in complete isolation but rather in collaboration with the firm's other

employees.

Finally, we test the main prediction of the financing supply channel for capital structure:

firms with younger investors should have lower leverage. Since equity is a more risky financial

claim than debt, if younger investors are more willing to finance risky projects, then they should

provide firms with more financing in the form of equity rather than debt. Therefore, firms in

younger locations should have lower leverage. In fact, when we rerun the regressions in Table 3

but with leverage as the dependent variable, we find that age structure and leverage are not

significantly related, neither economically nor statistically, which is inconsistent with the

financing supply channel in our setting. Taken together, our results rule out the pure financing

supply channel.

32
4.6. The Alternative Consumer Demand Channel

It is possible that our results are consistent with an alternative consumer demand channel

in which the age structure measures capture the local consumer pool rather than the local labor

force. The assumption underlying this channel is that younger local consumers demand more

innovative products, so the firm produces more innovation to satisfy local consumer demand.

Given that we use headquarters location to measure age structure, the consumer demand channel

is much less plausible than the labor supply channel. For the smallest firms, employees are

almost always more concentrated around headquarters than are customers. The operations of the

largest firms may well be more dispersed in general, but the employees of such firms are almost

always less dispersed than their customers, even when considering the various office locations of

a given firm. The labor force at the firm's headquarters is therefore much more likely to capture

its employees than its customers.

Nevertheless, to the extent that we can separate firms based on whether their workforce

serves local versus non-local consumer demand, we can test whether our results are explained by

the labor supply or consumer demand channel. Following Mian and Sufi (2014), our central

insight is that production and consumption must coincide in space and time for firms in non-

tradable industries, i.e., labor supply and consumer demand are local. However, for tradable

industries, production requires specialization and scale and therefore must be local, i.e., labor

supply is local, whereas consumption is non-local. Consequently, the local labor force may

capture both employees and customers in non-tradable industries, but it can only capture

employees, not customers, in tradable industries.

We examine the extent to which our results are driven by firms in tradable versus non-

tradable industries. We sort firms into tradable and non-tradable industries based on the two

33
measures used by Mian and Sufi (2014). Using the first measure, industries are classified as non-

tradable if they are retail- or restaurant-related, and industries are classified as tradable if they

exceed a minimum level of U.S. imports plus exports. According to the first measure, roughly

10% of our sample firms are in non-tradable industries, and about half are in tradable industries.

Using the second measure, industries are classified as non-tradable if they are in the top quartile

of the geographic dispersion of employment across counties in the U.S. (i.e., employment is most

dispersed). Industries in the bottom quartile of dispersion (i.e., employment is most concentrated)

are classified as tradable. We rerun the regressions in Table 3. The specifications include the

non-tradable industry dummy variable and its interaction with all other variables. Firms in

tradable industries are the base group.

[Insert Table 6 about here]

Table 6 presents the results. For firms in tradable industries, the effect of age structure on

innovation is similar to our baseline results for all firms (Table 3). This is the case for both

measures of tradable versus non-tradable industries. By contrast, the effect of age structure on

innovation for firms in non-tradable industries is never significantly different from zero, with all

of the coefficient estimates being statistically insignificant at conventional levels.20 In other

words, our results are clearly driven by firms in tradable industries, for which the labor force can

only capture employees, not customers. On the whole, the results allow us to rule out the pure

consumer demand channel.

20
The level of patent outputs is, on average, very low for firms in non-tradable industries (10% or 25% of our
sample firms, depending on the measure). These industries may in fact be less innovative generally, or their
innovation activities may not be well captured by patent outputs. Whatever the case may be, the results in Table 6
show that our baseline results, in which innovation activities are measured by patent outputs, are inconsistent with
the pure consumer demand channel.

34
4.7. Firm Composition

The finding that age structure affects innovation is consistent with two slightly different

alternative interpretations of the labor supply channel: firms innovating more in younger labor

markets taking as given the age structure and other characteristics of the local labor market, and

more innovative firms matching to younger labor markets. Both interpretations are consistent

with age structure having a causal effect on innovation, and they can mutually coexist. We can

better understand the two interpretations based on how the baseline results depend on firm age.

The assumption underlying the following analysis is that the youngest firms have the easiest time

to choose their location with respect to the age structure of the labor force, to the extent that the

age structure affects their innovation activities. At the very least, new startups have zero costs of

moving to their first location. In this analysis, matching should generate the strongest results for

the youngest firms.

We perform two simple variations on the regressions in Table 3. In the first, we sort firms

into four age groups: [0,5), [5,10), [10,20), and [20,). We pick these particular cutoffs because

they are intuitive, and they generate groups of firms with roughly the same number of

observations. The specifications include the first three of four firm age group dummy variables

and their interaction with all other variables. The fourth and oldest firm age group is the base

group. We continue to measure firm age from the date the firm begins trading publicly in CRSP,

and we measure firm location at the time of the firm's final appearance in Compustat.

[Insert Table 7 about here]

Panels A and B of Table 7 show that our baseline results are not driven by the youngest

firms. For the youngest firms (the first group), the effect of age structure on innovation is

significantly weaker than for the oldest firms, both in economic and statistical terms. In fact, the

35
effect for the youngest firms is generally not significantly different from zero, with two of the

eight coefficient estimates being statistically significant at the 10% level and the rest being

insignificant at conventional levels. The effect is gradually increasing in strength for the

progressively older firms in the second and third groups. For the oldest firms (the fourth and base

group), the effect of age structure on innovation is strongest, even stronger than for the average

firm in our baseline results (Table 3), by a factor of roughly two.

The second variation is only different from the first in that we only use firms with the

same location throughout their lives. We impose this restriction because measuring location at

the time of the firm's final appearance in Compustat may lead to mismeasurement of location for

firms that move across commuting zones during their lives. To this end, we use firms that are

located in the same commuting zone at the times of their IPO and final appearance in Compustat.

The tradeoff that we have to make is to use a smaller sample because we only have IPO location

data from SDC for about 60% of our full sample of firm-years. Within this sample, 80% of firms

do not move during their lives. Additionally, since the IPO location data only begin in 1970, the

sample of firms is now younger. To ensure that each group of firms has roughly the same

number of observations, we combine the third and fourth firm age groups into a single group:

[10,). The base group is now the third and still oldest firm age group.

The results in Panels C and D of Table 7 are similar to the results in Panels A and B.

Once again, the effect of age structure on innovation is strongest for the oldest firms. While the

magnitude of the results is greater than in our firm-level results (Table 3), it is comparable to our

commuting zone-level results (Table 2). The greater magnitude is also consistent with measuring

age structure more accurately. Moreover, it is reasonable that the local labor pool may be more

important for the oldest firms because they may need it to regularly replenish their human

36
capital. For the youngest firms, by contrast, a stable group of a few core employees comprise

most of their human capital, so the local labor pool may be of less importance to them.

5. Inventor-Level Analysis

5.1. Model Specification

Our final analysis is at the inventor level. At this level of analysis, we have thousands of

inventors in public and private firms. We can control for inventor- and firm-level characteristics.

We can also isolate the effect of the age structure of the labor force from inventor age, firm age,

and network scale effects within firms. In this analysis, the equation for the baseline regressions

is:

Innovationi,j,k,c,s,t+1 = α·Age_Structurec,t + β·Xi,k,t + δs,t + δj,t + δi + ε (3)

where i indexes firms, j indexes industries, k indexes inventors, c indexes commuting zones, s

indexes states, and t indexes years. Xi,k,t is a vector of firm- and inventor-level control variables,

δs,t is a state-year fixed effect, δj,t is an industry-year fixed effect, and δi is a firm fixed effect. The

location of inventors, like that of innovation, is determined by the address on the patent

document. To ensure that inventor locations are reasonably accurate relative to the beginning of

our quinquennial period observations, we only use locations that are no more than five years old.

Furthermore, to allow inventors enough time to establish a track record, we count the number of

patents per inventor during the prior 10 years, and we select the top 5% of inventors based on

number of patents.21

We focus on these star inventors for a number of reasons. The top several percent of

inventors account for the majority of patents and citations (see Akcigit, Baslandze, and

Stantcheva (2016) and Moretti and Wilson (2017)). Moreover, we can determine the location of

21
Compare Moretti and Wilson (2017), who use the top 5% of inventors, and Akcigit, Baslandze, and Stantcheva
(2016), who use the top 1%.

37
star inventors and measure their innovation output with good temporal precision. Since location

is determined based on patent documents, it is only star inventors who have enough patents to

allow us to reliably determine inventor location at least once every few years and to measure

inventor innovation outputs over the next year and the next five years. Additionally, star

inventors have high moving costs, just like firms. We can confirm in our data that star inventors

move at a similar rate to firms changing the location of their headquarters: about 1.5% per

annum. This stability alleviates concerns that our results may be driven by more productive

inventors choosing younger locations.

Returning to the inventor-level regressions, we measure age structure for inventors using

the commuting zone in which they are located. The data are not as rich at the inventor level as at

the firm level because the sample includes both public and private firms. However, we are able

to control for the age of both the inventor and the firm. Younger inventors and firms are likely to

be more innovative, so we control for the age of both. Doing so also allows us to isolate their

effect from the age structure of the labor force. We measure inventor age from the date of the

inventor's first patent, and analogously for the firm. We do so because we neither have inventor

birth dates, nor are firm founding dates widely available. Furthermore, inventors that produced

more patents in the past are likely to produce more patents in the future, so we control for the

patent stock of the inventor. Moreover, inventors working in larger groups may be more

innovative. We account for such network scale effects using the number of inventors working for

the firm at the same R&D hub as a given inventor, the number of inventors working at any of the

firm's R&D hubs, and the firm's number of R&D hubs.

Since the inventors working for a given firm can be located in different commuting

zones, we also include firm fixed effects and thus identify off the variation across commuting

38
zones but within firms. Additionally, we use industry-year fixed effects to remove variation

across industries and time that is common to both age structure and innovation. Similar to the

inventor-level analyses performed in many studies in the literature and as suggested by Lerner

and Seru (2017), we use the technology classes of inventors to create industry-year fixed effects.

The technology class of an inventor is the single technology field (out of roughly 500 possible

fields) in which he has the largest number of patents. Finally, standard errors are clustered by

industry-year, but the results are robust to clustering by inventor.

5.2. Sample and Descriptive Statistics

The inventors in our sample are stars (as defined above), accounting for over 20% of all

patents and over 25% of all patent citations. The firms at which these inventors work are the

public and private firms in the patent database. They break down into roughly one-third public

firms and two-thirds private firms. The sample itself comprises 14,541 inventor-quinquennial

period observations corresponding to 9,843 unique inventors, 1,728 unique firms, and 303

unique commuting zones.

Returning to the descriptive statistics in Table 1, there is roughly 1 patent per annum on

average (median 0.3-0.5) at the inventor-year level. The typical sample inventor has been

working for approximately 16 years relative to the date of his first patent. He produces an

average of 2.4 patents per year (median of 2.0) (inventor patent stock divided by inventor age).

The last four control variables in Table 1 Panel C are tabulated at the inventor level like

the other variables. This is necessary for correctly interpreting our regression results. However,

these variables are not very meaningful to interpret as descriptive statistics because the sample is

duplicated for firm R&D hubs and firms with multiple inventors. The results are therefore driven

by those firm R&D hubs and firms that have the most inventors. Rather than repeating the

39
tabulated figures, we report the corresponding aggregated figures. At the firm R&D hub level,

there are a mean of 119 inventors (rather than the 599 tabulated). Further aggregating to the firm

level, the average firm has been producing patents for 16 years. Additionally, firms have an

average of 310 inventors working for them, including both stars and non-stars. The average firm

has 20 R&D hubs, although at least half of inventors are located at headquarters.

5.3. Results

[Insert Table 8 about here]

The regression results are presented in Table 8, with the mean age in Panel A and the

young share in Panel B. Once again, the results confirm that younger labor forces produce more

innovation. In Panel A, a one standard deviation decrease in the mean age (2.0 years) causes an

increase in patents of roughly 5%-11%. In Panel B, a one standard deviation increase in the

young share (7.8 percentage points) causes a similar 6%-13% increase in patents. Whether for

patent counts and citations, or the short run and the long run, the results are similar. Since we

control for the ages of inventors and firms, we can rule out inventor and firm life cycle

interpretations of our results. We can also rule out firm-specific time-invariant omitted factors

because we include firm fixed effects.

Furthermore, two of our control variables provide a nice complement to the age structure

of the labor force. In particular, both inventor age and firm age have a negative relationship with

innovation. For comparison with the causal effect of age structure, a one standard deviation

decrease in inventor age is associated with a 17%-33% increase in patents (e.g., in Column 1, -

0.846(-6.1/15.8)=33%). For firm age, the corresponding increase in patents is 53%-63% (e.g.,

in Column 1, -0.880(-18.2/26.7)=60%). While these results cannot be interpreted causally, they

do suggest that individuals and organizations, much like labor markets, are more innovative

40
when they are younger. More importantly, it suggests that labor markets have both individual

and social effects on innovation. In a younger labor market, the average inventor is younger, and

he may be more innovative as a result of his youth. This individual effect is captured by the

inventor age variable in our regressions.

However, our regressions also show that a given inventor is more innovative when other

workers around him are younger, even after taking into account his own age. These other

workers include not just those within his firm but also outside of it, and not just fellow inventors

but also other workers in the local labor force. Indeed, the age structure of the local labor force

may not even operate primarily through the age of the inventor identified on the patent

document, who is a relatively senior employee. Instead, it may operate mainly through the

relatively junior graduate students, post-doctoral researchers, scientists, engineers, etc. who work

for the inventor, like in the academic setting examined by Bowen, Frésard, and Taillard (2017).

Such knowledge spillovers generated by the interactions of inventors are captured by the age

structure of the labor force.

6. Value Implications

Finally, returning to the firm level, we examine whether the effect of age structure on

innovation is reflected in firm valuations. If the increase in innovation that results from hiring

younger workers generates growth opportunities for firms, then firms in younger labor markets

should have higher valuations. We use market-to-book of equity to measure valuation. We

examine the effect of age structure on valuation in the short run and the long run, measured the

next year and the average of the next five years, respectively. We run firm-level regressions for

valuation similar to those for innovation (Table 3), but we use market-to-book as the dependent

variable rather than patents, and we exclude market-to-book from our control variables.

41
 [Insert Table 9 about here]

Table 9 presents the results, which show that firms in younger labor markets have higher

valuations, both in the short run and the long run. A decrease of one standard deviation in the

mean age (2.2 years) causes a roughly 3% (=0.015×2.2) increase in valuations (Panel A). An

increase of one standard deviation in the young share (8.4 percentage points) causes a similar 3%

increase in valuations (=0.35×0.084) (Panel B). As for innovation, so for valuation the results are

similar in the short run and the long run. Overall, the results suggest that the growth

opportunities generated by younger labor forces are reflected in firm valuations.

We also examine one of the fundamental drivers of firm valuations: firm productivity. If

the increase in innovation that results from hiring younger workers improves firm productivity,

then firms in younger labor markets should, all else equal, be more productive. We obtain total

factor productivity (TFP) data from İmrohoroğlu and Tüzel (2014). They estimate TFP for a

sample of publicly traded firms using a Cobb-Douglas production function in which value added

is explained by the labor and capital of the firm as well as its productivity. These data only cover

about 70% of our full sample of firm-years. All of the variables in the model, including TFP, are

measured in natural logarithms, and the model is estimated using industry-year fixed effects. We

run firm-level regressions similar to those for innovation (Table 3), but we use productivity as

the dependent variable, and we exclude industry-year fixed effects because these are already

removed from the TFP estimates.

The results in Appendix Table 5 show that firms in younger labor markets have higher

productivity in the short run. In both panels, a one standard deviation change in age structure

(i.e., a decrease in the mean age or an increase in the young share) causes a roughly 2% increase

in productivity. The results in the long run are similar in magnitude but are no longer statistically

42
significant. Overall, the results provide suggestive evidence that improved firm productivity

reflects the greater innovation generated by younger labor forces.

7. Conclusion

We study the effect of age structure of the labor force on corporate innovation. We argue

that because of their creativity, risk tolerance, horizons, and interactivity, younger people are

instrumental in the production of innovation. We therefore hypothesize that a younger local labor

force produces more innovation.

We measure locations using commuting zones and innovation using patent outputs. We

reconstruct the labor force using historical births, and use this plausibly exogenous native born

labor force to measure the age structure of the labor force. We perform our analysis at three

levels, each with their own economic and statistical advantages: commuting zones, firms, and

inventors.

At each level of analysis, we consistently find that a younger age structure causes more

innovation. Our results are not driven by firm or inventor life cycle effects, nor can they be

explained by financing supply or consumer demand effects. Finally, we find that firm valuations

reflect the effect of age structure on innovation.

Our findings indicate policy recommendations for the demographic challenges

confronting the world today. We find that not only do younger labor forces produce more

innovation, they also create more wealth. These findings support at least three types of public

policies that can counter the effects of an aging population: improving the education and training

of the native born population; encouraging young and skilled immigration; and incentivizing

domestic population growth.

43
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 Table 1
Descriptive Statistics

This table presents descriptive statistics for the main variables used in this paper. The samples in the three panels are
described in the text. Variables are defined in Appendix Table 1.

Panel A: Commuting Zone-Level Sample

Standard 25th 75th
Mean Median
deviation percentile percentile
Independent variables
- Projected mean age (years) 41.6 2.3 40.3 41.9 43.1
- Projected young share (%) 44.6 8.5 38.7 43.4 49.4
- Actual mean age (years) 40.7 1.7 39.6 40.7 41.8
- Actual young share (%) 47.8 6.6 43.5 48.1 52.3
Dependent variables
- Patent counts-to-population: Next year 10.3 15.5 0.9 4.8 12.2
- Patent counts-to-population: Next 5 years 11.0 16.3 1.9 5.0 12.7
- Patent citations-to-population: Next year 12.0 20.2 0.0 4.3 13.7
- Patent citations-to-population: Next 5 years 12.9 20.7 1.4 5.1 14.6
Control variables
- Population size (thousands) 330.0 692.3 35.4 99.1 281.7
- Income per capita ($ thousands) 26.2 5.3 22.6 25.3 28.9
- Growth rate of total income (%) 1.3 3.4 -0.6 1.3 3.3
- Government spending-to-total income (%) 10.3 3.6 7.8 9.4 11.8
- Educational attainment (%) 16.4 5.9 12.1 15.0 19.4
- University patent counts-to-population 0.4 1.1 0.0 0.0 0.0

49
 Panel B: Firm-Level Sample
Standard 25th 75th
Mean Median
deviation percentile percentile
Independent variables
- Projected mean age (years) 38.8 2.2 37.3 38.9 40.4
- Projected young share (%) 54.7 8.4 48.5 54.6 59.8
- Actual mean age (years) 39.6 1.1 38.9 39.5 40.3
- Actual young share (%) 52.3 4.7 49.1 52.6 55.4
Dependent variables
- Patent counts: Next year 4.5 18.9 0.0 0.0 1.0
- Patent counts: Next 5 years 4.8 19.6 0.0 0.0 1.0
- Patent citations: Next year 5.7 23.5 0.0 0.0 0.5
- Patent citations: Next 5 years 6.0 24.4 0.0 0.0 1.0
- Citations per patent 1.4 1.6 0.5 0.9 1.7
- Proportion of extremely useful patents 1.8 7.4 0.0 0.0 0.0
- Proportion of useful and novel patents 0.2 0.8 0.0 0.0 0.0
- Volatility of citations per patent 1.2 1.3 0.4 0.8 1.6
- Longevity of citations per patent 1.0 0.3 0.9 1.0 1.1
- Proportion of local citations 5.2 15.5 0.0 1.3 3.7
- Originality (%) 46.3 18.2 36.0 47.3 58.5
- Generality (%) 40.5 21.0 25.0 43.0 56.1
Control variables
- Total assets ($ millions) 1,076 3,362 29 113 509
- Market-to-book 3.3 4.4 1.1 2.0 3.6
- Cash flow-to-total assets (%) 5.1 23.4 1.7 11.0 17.2
- Stock returns (%) 4.0 67.1 -31.0 3.6 38.6
- Stock return volatility (%) 68.7 40.8 38.4 57.5 88.6
Panel C: Inventor-Level Sample
Standard 25th 75th
Mean Median
deviation percentile percentile
Independent variables
- Projected mean age (years) 39.4 2.0 38.0 39.4 41.1
- Projected young share (%) 52.2 7.8 45.9 52.4 58.1
- Actual mean age (years) 40.0 1.1 39.2 40.0 40.8
- Actual young share (%) 50.4 4.7 46.6 50.1 53.8
Dependent variables
- Patent counts: Next year 1.00 1.39 0.13 0.50 1.25
- Patent counts: Next 5 years 0.86 1.05 0.24 0.51 1.03
- Patent citations: Next year 1.26 2.67 0.00 0.31 1.19
- Patent citations: Next 5 years 1.07 2.10 0.10 0.34 1.02
Control variables
- Inventor age (years) 15.8 6.1 11.0 15.0 20.0
- Inventor patent stock 38 25 22 30 44
- R&D hub number of inventors 599 895 28 165 708
- Firm age (years) 26.7 18.2 12.0 25.0 35.0
- Firm number of inventors 2,368 4,108 133 770 2,831
- Firm number of R&D hubs 65 59 16 52 95

50
 Table 2
The Effect of Age Structure on Innovation: Baseline Commuting Zone-Level Analysis

This table shows the results of regressions of innovation on age structure. The regressions follow Equation 1. The unit of observation is the commuting zone-
quinquennial period. The sample and specifications are described in the text. Age structure is measured for the labor force projected based on historical births.
Variables are defined in Appendix Table 1. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Age Structure Measured Using Mean Age

Dependent variable is ln(1+patents/population per annum)
Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next year Next year Next year Next year Next 5 years Next year Next 5 years
Age structure -0.112*** -0.108*** -0.111*** -0.133*** -0.121*** -0.112*** -0.124*** -0.110***
(-3.60) (-3.80) (-4.31) (-4.72) (-5.18) (-4.89) (-5.30) (-4.94)
ln(Population size) 0.014 0.008 -0.027 -0.021 -0.038 -0.066** -0.024 -0.049
(0.34) (0.20) (-0.85) (-0.71) (-1.32) (-2.37) (-0.75) (-1.57)
ln(Income per capita) 2.488*** 2.106*** 0.780 1.892*** 0.733 0.793 0.815 0.758
(4.47) (3.78) (1.38) (4.22) (1.27) (1.41) (1.41) (1.39)
Growth rate of total income 0.257 -0.336 -1.337 -1.441 -2.314* -1.884 -1.852 -1.511
(0.11) (-0.16) (-0.77) (-0.88) (-1.68) (-1.47) (-1.29) (-1.18)
Government spending-to- -8.566** -7.759*** -7.907*** -8.071*** -8.405***
total income (-2.50) (-2.71) (-2.75) (-2.67) (-2.84)
Educational attainment 7.292*** 4.414*** 4.682*** 5.261*** 5.694***
(6.61) (4.29) (4.67) (4.92) (5.59)
ln(1+University 0.606*** 0.382*** 0.390*** 0.379*** 0.379***
patent counts/population) (8.95) (6.01) (6.18) (5.25) (5.49)
State-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Observations 2,748 2,748 2,748 2,748 2,748 2,748 2,748 2,748
Adjusted R2 0.625 0.640 0.669 0.673 0.695 0.718 0.693 0.717

51
 Panel B: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents/population per annum)
Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next year Next year Next year Next year Next 5 years Next year Next 5 years
Age structure 3.024*** 2.910*** 2.992*** 3.549*** 3.230*** 2.991*** 3.232*** 2.905***
(3.77) (3.92) (4.47) (4.91) (5.29) (5.01) (5.25) (4.98)
ln(Population size) 0.017 0.011 -0.024 -0.016 -0.034 -0.063** -0.019 -0.044
(0.42) (0.28) (-0.74) (-0.55) (-1.19) (-2.25) (-0.59) (-1.45)
ln(Income per capita) 2.491*** 2.111*** 0.783 1.899*** 0.738 0.797 0.823 0.764
(4.49) (3.79) (1.38) (4.25) (1.28) (1.41) (1.41) (1.39)
Growth rate of total income 0.268 -0.319 -1.324 -1.416 -2.289 -1.863 -1.815 -1.485
(0.11) (-0.15) (-0.76) (-0.86) (-1.65) (-1.44) (-1.25) (-1.15)
Government spending-to- -8.526** -7.720*** -7.870*** -8.039*** -8.372***
total income (-2.49) (-2.69) (-2.73) (-2.65) (-2.83)
Educational attainment 7.289*** 4.433*** 4.699*** 5.289*** 5.714***
(6.60) (4.28) (4.65) (4.91) (5.57)
ln(1+University 0.604*** 0.379*** 0.387*** 0.375*** 0.376***
patent counts/population) (8.95) (5.94) (6.13) (5.16) (5.43)
State-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Observations 2,748 2,748 2,748 2,748 2,748 2,748 2,748 2,748
Adjusted R2 0.625 0.640 0.669 0.672 0.695 0.718 0.692 0.717

52
 Table 3
The Effect of Age Structure on Innovation: Baseline Firm-Level Analysis

This table shows the results of regressions of innovation on age structure. The regressions follow Equation 2. The
unit of observation is the firm-quinquennial period. The sample and specifications are described in the text. Age
structure is measured for the labor force projected based on historical births. Variables are defined in Appendix
Table 1. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

53
 Panel A: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.030*** -0.033*** -0.040*** -0.045***
(-2.99) (-3.33) (-3.62) (-4.32)
ln(Total assets) 0.243*** 0.258*** 0.259*** 0.273***
(10.86) (11.30) (11.01) (11.49)
Market-to-book 0.019*** 0.023*** 0.022*** 0.028***
(7.44) (7.96) (7.92) (8.47)
Cash flow-to-total assets -0.239*** -0.224*** -0.260*** -0.222***
(-5.32) (-4.31) (-5.40) (-4.27)
Stock returns 0.033** 0.061*** 0.043*** 0.066***
(2.16) (3.95) (2.66) (3.92)
Stock return volatility 0.112*** 0.114*** 0.136*** 0.125***
(3.23) (3.23) (3.67) (3.18)
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes
Observations 14,086 14,086 14,086 14,086
Adjusted R2 0.429 0.454 0.374 0.402
Panel B: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 0.833*** 0.915*** 1.132*** 1.260***
(3.04) (3.33) (3.64) (4.26)
ln(Total assets) 0.243*** 0.258*** 0.259*** 0.273***
(10.87) (11.31) (11.02) (11.51)
Market-to-book 0.019*** 0.023*** 0.022*** 0.028***
(7.45) (7.97) (7.93) (8.49)
Cash flow-to-total assets -0.240*** -0.224*** -0.261*** -0.223***
(-5.34) (-4.32) (-5.41) (-4.28)
Stock returns 0.033** 0.061*** 0.043*** 0.066***
(2.18) (3.97) (2.68) (3.95)
Stock return volatility 0.111*** 0.114*** 0.135*** 0.125***
(3.23) (3.23) (3.67) (3.18)
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes
Observations 14,086 14,086 14,086 14,086
Adjusted R2 0.429 0.454 0.375 0.403

54
 Table 4
The Effect of Age Structure on Innovation Characteristics: Firm-Level Analysis

This table shows the results of regressions of innovation characteristics on age structure. The regressions follow Equation 2. The unit of observation is the firm-
quinquennial period. The sample and specifications are described in the text. Age structure is measured for the labor force projected based on historical births.
Variables are defined in Appendix Table 1. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Age Structure Measured Using Mean Age

Dependent variables are innovation characteristics
Creativity #2: Creativity #3: Riskiness: Horizon: Local
Creativity #1:
Proportion of Proportion of Volatility of Longevity of spillovers: Other #1: Other #2:
Citations per
extremely useful and citations per patent Proportion of Originality Generality
patent
useful patents novel patents patent citations local citations
Age structure -0.026** -0.032*** -0.028** -0.046*** -0.008** -0.072** -0.285 -0.070
(-2.00) (-3.01) (-2.19) (-2.75) (-2.33) (-2.41) (-1.38) (-0.27)
ln(Total assets) 0.128*** 0.080*** 0.112*** 0.218*** 0.007 0.194*** 0.039 -0.230
(7.12) (6.74) (11.87) (9.64) (1.24) (8.86) (0.24) (-1.18)
Market-to-book 0.016*** 0.011*** 0.009*** 0.015*** 0.002* 0.007 -0.009 -0.037
(4.38) (3.35) (3.68) (3.48) (1.77) (1.21) (-0.19) (-0.62)
Cash flow-to-total assets -0.170* -0.027 0.025 -0.002 -0.024 -0.364** -2.102 -1.587
(-1.71) (-0.43) (0.50) (-0.02) (-0.97) (-2.25) (-1.40) (-1.05)
Stock returns -0.027 0.003 -0.001 0.012 0.001 0.162*** -0.005 -0.682*
(-0.77) (0.11) (-0.04) (0.39) (0.14) (4.02) (-0.01) (-1.83)
Stock return volatility 0.068 0.086 0.149*** 0.052 0.017 -0.117 -0.337 1.574
(1.06) (1.58) (4.26) (0.79) (0.73) (-1.16) (-0.23) (1.16)
Industry-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Observations 5,768 5,768 5,768 4,361 4,365 5,768 5,754 5,454
Adjusted R2 0.228 0.112 0.098 0.197 0.039 0.121 0.101 0.384

55
 Panel B: Age Structure Measured Using Young Share
Dependent variables are innovation characteristics
Creativity #2: Creativity #3: Riskiness: Horizon: Local
Creativity #1:
Proportion of Proportion of Volatility of Longevity of spillovers: Other #1: Other #2:
Citations per
extremely useful and citations per patent Proportion of Originality Generality
patent
useful patents novel patents patent citations local citations
Age structure 0.727** 0.881*** 0.708** 1.178*** 0.192** 1.869** 8.176 2.141
(2.18) (3.06) (2.11) (2.78) (2.16) (2.32) (1.53) (0.32)
ln(Total assets) 0.128*** 0.080*** 0.112*** 0.218*** 0.007 0.195*** 0.038 -0.231
(7.11) (6.74) (11.85) (9.65) (1.24) (8.86) (0.23) (-1.19)
Market-to-book 0.016*** 0.011*** 0.009*** 0.015*** 0.002* 0.007 -0.009 -0.037
(4.38) (3.35) (3.67) (3.47) (1.77) (1.21) (-0.19) (-0.62)
Cash flow-to-total assets -0.171* -0.028 0.025 -0.003 -0.024 -0.366** -2.113 -1.590
(-1.72) (-0.45) (0.48) (-0.03) (-0.97) (-2.26) (-1.40) (-1.06)
Stock returns -0.027 0.003 -0.000 0.012 0.001 0.162*** -0.004 -0.681*
(-0.76) (0.11) (-0.03) (0.40) (0.15) (4.03) (-0.01) (-1.83)
Stock return volatility 0.068 0.086 0.150*** 0.052 0.017 -0.117 -0.341 1.571
(1.05) (1.57) (4.27) (0.80) (0.74) (-1.15) (-0.23) (1.16)
Industry-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Observations 5,768 5,768 5,768 4,361 4,365 5,768 5,754 5,454
Adjusted R2 0.228 0.112 0.098 0.197 0.039 0.121 0.101 0.384

56
 Table 5
The Effect of Age Structure on Innovation: Firm-Level Analysis for Firms with R&D Hubs

This table shows the results of regressions of innovation on age structure. The regressions follow Equation 2. The
unit of observation is the firm-quinquennial period. The regressions are the same as in Table 3, but the sample is
restricted to firms with R&D hubs. The specifications include control variables and fixed effects for industry-year,
state-year, and firm age. Panels A and B use only the age structure at the firm's headquarters. Panels C and D use the
age structures at both the firm's headquarters and its R&D hubs. Age structure is measured for the labor force
projected based on historical births. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels,
respectively.

Panel A: Headquarters Only: Age Structure Measured Using Mean Age

Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure at headquarters -0.026* -0.029** -0.046*** -0.051***
(-1.93) (-2.44) (-3.06) (-4.04)
Observations 6,259 6,259 6,259 6,259
Adjusted R2 0.347 0.384 0.284 0.335
Panel B: Headquarters Only: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure at headquarters 0.732** 0.819*** 1.296*** 1.415***
(2.07) (2.62) (3.17) (4.17)
Observations 6,259 6,259 6,259 6,259
Adjusted R2 0.347 0.384 0.285 0.336
Panel C: Both Headquarters and R&D Hubs: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure at headquarters -0.017 -0.021* -0.029* -0.034**
(-1.27) (-1.66) (-1.81) (-2.57)
Age structure at R&D hubs -0.025** -0.024* -0.052*** -0.048***
(-2.05) (-1.95) (-3.77) (-3.47)
Observations 6,259 6,259 6,259 6,259
Adjusted R2 0.347 0.385 0.286 0.337
Panel D: Both Headquarters and R&D Hubs: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure at headquarters 0.486 0.587* 0.811* 0.962***
(1.37) (1.80) (1.90) (2.67)
Age structure at R&D hubs 0.740** 0.697** 1.455*** 1.359***
(2.24) (2.06) (3.93) (3.56)
Observations 6,259 6,259 6,259 6,259
Adjusted R2 0.348 0.385 0.287 0.338

57
 Table 6
The Effect of Age Structure on Innovation: Firm-Level Analysis Comparing Tradable and Non-Tradable
Industries

This table shows the results of regressions of innovation on age structure for firms in non-tradable industries
compared to firms in tradable industries. The regressions follow Equation 2. The unit of observation is the firm-
quinquennial period. The regressions are the same as in Table 3, but firms are classified as being in either tradable or
non-tradable industries, and the specifications include the non-tradable firm dummy variable and its interaction with
all other variables. The specifications also include control variables and fixed effects for industry-year, state-year,
and firm age. In Panels A and B, industries are classified as non-tradable if they are retail- or restaurant-related, and
as tradable if they exceed a minimum level of U.S. imports plus exports. In Panels C and D, industries are classified
as non-tradable if they are in the top quartile of the geographic dispersion of employment, and as tradable if they are
in the bottom quartile of dispersion. Age structure is measured for the labor force projected based on historical
births. The regressions include a consumer orientation dummy variable and its interaction with age structure. ***,
**, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Measure #1 of Industry Type: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.032** -0.031** -0.047*** -0.047***
(-2.33) (-2.45) (-3.19) (-3.52)
Age structure × Non-tradable 0.035** 0.036** 0.056*** 0.059***
industry dummy variable (2.12) (2.45) (2.94) (3.54)
Observations 9,056 9,056 9,056 9,056
Adjusted R2 0.498 0.531 0.439 0.475
Panel B: Measure #1 of Industry Type: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 0.928** 0.905** 1.348*** 1.376***
(2.43) (2.53) (3.28) (3.59)
Age structure × Non-tradable -1.012** -1.060** -1.591*** -1.695***
industry dummy variable (-2.27) (-2.58) (-3.10) (-3.67)
Observations 9,056 9,056 9,056 9,056
Adjusted R2 0.498 0.531 0.440 0.476

58
 Panel C: Measure #2 of Industry Type: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.044* -0.037* -0.059** -0.050**
(-1.93) (-1.74) (-2.38) (-2.19)
Age structure × Non-tradable 0.036 0.026 0.055** 0.040
industry dummy variable (1.48) (1.14) (2.10) (1.63)
Observations 7,546 7,546 7,546 7,546
Adjusted R2 0.499 0.534 0.455 0.492
Panel D: Measure #2 of Industry Type: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 1.329** 1.130* 1.786*** 1.532**
(2.16) (1.93) (2.65) (2.40)
Age structure × Non-tradable -1.121* -0.866 -1.708** -1.316*
industry dummy variable (-1.74) (-1.39) (-2.40) (-1.93)
Observations 7,546 7,546 7,546 7,546
Adjusted R2 0.499 0.534 0.455 0.492

59
 Table 7
The Effect of Age Structure on Innovation Conditional Upon Firm Age: Firm-Level Analysis

This table shows the results of regressions of innovation on age structure conditional upon firm age. The regressions
follow Equation 2. The unit of observation is the firm-quinquennial period. The regressions are the same as in Table
3, but the specifications include the firm age group dummy variables and their interaction with all other variables. In
Panels A and B, firm location is measured at the time of the firm's final appearance in Compustat (IPO). In Panels C
and D, firm location is the same at the times of IPO and final appearance in Compustat. In Panels A and B (C and
D), the first three (two) firm age groups are used in interactions, and the fourth (third) and oldest firm age group is
the base group. The sample and specifications are described in the text. Age structure is measured for the labor force
projected based on historical births. Variables are defined in Appendix Table 1. ***, **, and * indicate statistical
significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Location at Final Appearance: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.059*** -0.055** -0.083*** -0.076***
(-2.73) (-2.59) (-3.59) (-3.27)
Age structure × Firm age  [0,5) 0.048** 0.036* 0.070*** 0.048**
years dummy variable (2.27) (1.70) (2.95) (2.01)
Age structure × Firm age  [5,10) 0.033 0.018 0.042* 0.029
years dummy variable (1.42) (0.77) (1.70) (1.12)
Age structure × Firm age  [10,20) 0.005 0.005 0.017 0.013
years dummy variable (0.19) (0.22) (0.64) (0.48)
Control variables? Yes Yes Yes Yes
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes
Observations 13,909 13,909 13,909 13,909
Adjusted R2 0.465 0.484 0.399 0.420
Panel B: Location at Final Appearance: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 1.716*** 1.598*** 2.389*** 2.177***
(2.85) (2.71) (3.73) (3.39)
Age structure × Firm age  [0,5) -1.419** -1.100* -2.035*** -1.453**
years dummy variable (-2.50) (-1.94) (-3.21) (-2.27)
Age structure × Firm age  [5,10) -1.003 -0.577 -1.257* -0.854
years dummy variable (-1.60) (-0.90) (-1.91) (-1.22)
Age structure × Firm age  [10,20) -0.193 -0.223 -0.551 -0.444
years dummy variable (-0.28) (-0.33) (-0.74) (-0.59)
Control variables? Yes Yes Yes Yes
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes
Observations 13,909 13,909 13,909 13,909
Adjusted R2 0.465 0.484 0.399 0.421

60
 Panel C: Same Location at Initial and Final Appearance: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.116*** -0.102*** -0.163*** -0.142***
(-4.96) (-3.92) (-5.56) (-4.91)
Age structure × Firm age  [0,5) 0.103*** 0.076*** 0.150*** 0.105***
years dummy variable (3.83) (3.00) (4.17) (3.52)
Age structure × Firm age  [5,10) 0.087*** 0.056 0.105*** 0.074*
years dummy variable (2.75) (1.63) (2.88) (1.80)
Control variables? Yes Yes Yes Yes
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes
Observations 5,959 5,959 5,959 5,959
Adjusted R2 0.371 0.400 0.316 0.362
Panel D: Same Location at Initial and Final Appearance: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 3.290*** 2.872*** 4.597*** 4.012***
(5.01) (4.08) (5.65) (5.08)
Age structure × Firm age  [0,5) -2.978*** -2.247*** -4.302*** -3.063***
years dummy variable (-4.01) (-3.24) (-4.35) (-3.82)
Age structure × Firm age  [5,10) -2.568*** -1.679* -3.078*** -2.213**
years dummy variable (-3.03) (-1.86) (-3.14) (-2.05)
Control variables? Yes Yes Yes Yes
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm age fixed effects? Yes Yes Yes Yes
Observations 5,959 5,959 5,959 5,959
Adjusted R2 0.371 0.400 0.316 0.362

61
 Table 8
The Effect of Age Structure on Innovation: Baseline Inventor-Level Analysis

This table shows the results of regressions of innovation on age structure. The regressions follow Equation 3. The
unit of observation is the inventor-quinquennial period. The sample and specifications are described in the text. Age
structure is measured for the labor force projected based on historical births. Variables are defined in Appendix
Table 1. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Age Structure Measured Using Mean Age

Dependent variable is ln(0.01+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.047** -0.027** -0.055** -0.033**
(-2.33) (-2.40) (-2.55) (-2.06)
ln(Inventor age) -0.846*** -0.439*** -0.830*** -0.514***
(-14.22) (-12.55) (-14.03) (-10.10)
ln(Inventor patent stock) 1.226*** 0.712*** 1.280*** 0.869***
(23.79) (22.41) (20.91) (17.69)
ln(R&D hub number of inventors) 0.055*** 0.046*** 0.049** 0.040***
(2.99) (4.50) (2.53) (2.80)
ln(Firm age) -0.880*** -0.780*** -0.929*** -0.889***
(-6.44) (-12.60) (-6.95) (-9.47)
ln(Firm number of inventors) 0.216 0.157 0.305 0.233*
(1.10) (1.61) (1.51) (1.76)
ln(Firm number of R&D hubs) 0.199 0.041 -0.074 -0.086
(0.78) (0.31) (-0.28) (-0.47)
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm fixed effects? Yes Yes Yes Yes
Observations 14,078 14,078 14,078 14,078
Adjusted R2 0.210 0.295 0.262 0.337

62
 Panel B: Age Structure Measured Using Young Share
Dependent variable is ln(0.01+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 1.353** 0.792** 1.606*** 0.978**
(2.46) (2.51) (2.70) (2.23)
ln(Inventor age) -0.846*** -0.439*** -0.830*** -0.515***
(-14.22) (-12.55) (-14.03) (-10.11)
ln(Inventor patent stock) 1.226*** 0.712*** 1.280*** 0.870***
(23.79) (22.40) (20.91) (17.69)
ln(R&D hub number of inventors) 0.055*** 0.046*** 0.049** 0.040***
(2.97) (4.48) (2.50) (2.78)
ln(Firm age) -0.881*** -0.781*** -0.930*** -0.890***
(-6.44) (-12.60) (-6.96) (-9.48)
ln(Firm number of inventors) 0.215 0.157 0.305 0.233*
(1.10) (1.61) (1.51) (1.76)
ln(Firm number of R&D hubs) 0.199 0.041 -0.074 -0.085
(0.79) (0.31) (-0.28) (-0.47)
Industry-year fixed effects? Yes Yes Yes Yes
State-year fixed effects? Yes Yes Yes Yes
Firm fixed effects? Yes Yes Yes Yes
Observations 14,078 14,078 14,078 14,078
Adjusted R2 0.210 0.295 0.262 0.337

63
 Table 9
The Effect of Age Structure on Valuation: Firm-Level Analysis

This table shows the results of regressions of valuation on age structure. The unit of observation is the firm-
quinquennial period. The sample and specifications are described in the text. Age structure is measured for the labor
force projected based on historical births. Variables are defined in Appendix Table 1. ***, **, and * indicate
statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Age Structure Measured Using Mean Age

Dependent variable is ln(Market-to-book)
Next year Average of next 5 years
Age structure -0.016*** -0.015***
(-2.89) (-2.76)
ln(Total assets) -0.007 0.007*
(-1.47) (1.68)
Cash flow-to-total assets -0.604*** -0.739***
(-12.95) (-19.42)
Stock returns 0.261*** 0.172***
(16.49) (11.94)
Stock return volatility -0.172*** -0.076***
(-7.01) (-3.40)
Industry-year fixed effects? Yes Yes
State-year fixed effects? Yes Yes
Firm age fixed effects? Yes Yes
Observations 13,617 13,887
Adjusted R2 0.213 0.181
Panel B: Age Structure Measured Using Young Share
Dependent variable is ln(Market-to-book)
Next year Average of next 5 years
Age structure 0.410*** 0.355**
(2.70) (2.44)
ln(Total assets) -0.007 0.007*
(-1.47) (1.69)
Cash flow-to-total assets -0.605*** -0.740***
(-12.96) (-19.44)
Stock returns 0.261*** 0.172***
(16.51) (11.95)
Stock return volatility -0.172*** -0.075***
(-7.01) (-3.39)
Industry-year fixed effects? Yes Yes
State-year fixed effects? Yes Yes
Firm age fixed effects? Yes Yes
Observations 13,617 13,887
Adjusted R2 0.213 0.181

64
 Patents per hundred thousand people +1 1,000

100

10

1
33 35 37 39 41 43 45 47 49
Mean age
Figure 1. The effect of age structure on innovation. This figure shows the ratio of patent counts to population as a
function of the age structure of the projected labor force for all commuting zones in the U.S. in the year 2000. The
population of the commuting zone is measured in hundred thousands. The projected labor force refers to the labor
force projected based on historical births.

65
 5

2
Birth rate

-1

-2

-3

-4
1926

1931

1936

1941

1946

1951

1956

1961

1966

1971

1976

1981
Northeast Midwest South West
Figure 2. Evolution of the historical births used to construct the projected age structure of the labor force by
location. This figure shows the evolution of the historical births from 1926, or 64 years before the beginning of the
sample period in 1990, to 1985, or 20 years before the end of the sample period in 2005. The census regions shown
in the figure span the country. The birth rate is measured per thousand people and detrended.

66
 Panel A: Projected Labor Force

43

42

41 New England
Middle Atlantic
40 East North Central
Mean age

West North Central

39 South Atlantic
East South Central
38 West South Central
Mountain
37 Pacific

36

35
1990

1992

1994

1996

1998

2000

2002

2004
Panel B: Actual Labor Force

42

41 New England
Middle Atlantic
East North Central
Mean age

West North Central

40 South Atlantic
East South Central
West South Central
Mountain
39 Pacific

38
1990

1992

1994

1996

1998

2000

2002

2004

Figure 3. Evolution of the mean age of the projected and actual labor forces by location. This figure shows the
mean age of the projected and actual labor forces during the sample period (1990-2005). The census divisions
shown span the country. The projected labor force refers to the labor force projected based on historical births.

67
 New England Middle Atlantic East North Central
3 3 3

2 2 2
Actual
1 population 1 1
Mean age

Mean age

Mean age
(gray curve)
0 0 0
Projected
-1 population -1 -1
(black curve)
-2 -2 -2

-3 -3 -3
1990 1992 1994 1996 1998 2000 2002 2004 1990 1992 1994 1996 1998 2000 2002 2004 1990 1992 1994 1996 1998 2000 2002 2004

West North Central South Atlantic East South Central

3 3 3

2 2 2

1 1 1
Mean age

Mean age

Mean age
0 0 0

-1 -1 -1

-2 -2 -2

-3 -3 -3
1990 1992 1994 1996 1998 2000 2002 2004 1990 1992 1994 1996 1998 2000 2002 2004 1990 1992 1994 1996 1998 2000 2002 2004

West South Central Mountain Pacific

3 3 3

2 2 2

1 1 1
Mean age

Mean age

Mean age
0 0 0

-1 -1 -1

-2 -2 -2

-3 -3 -3
1990 1992 1994 1996 1998 2000 2002 2004 1990 1992 1994 1996 1998 2000 2002 2004 1990 1992 1994 1996 1998 2000 2002 2004

Figure 4. Evolution of the mean age of the projected and actual labor forces by location. This figure shows the mean age of the projected and actual labor
forces during the sample period (1990-2005). The census divisions shown span the country. The mean age is first detrended and then standardized within each
location. The projected labor force refers to the labor force projected based on historical births.

68
 Appendix Table 1
Variable Definitions

Demographic Variables Common to All Regressions

Name Definition
- Projected mean age Mean age of the labor force (ages 20-64) in a commuting zone, projected
based on historical births and adjusted for survival
- Projected young share The young share (ages 20-39) of the labor force (ages 20-64) in a commuting
zone, projected based on historical births and adjusted for survival
- Actual mean age Mean age of the labor force (ages 20-64) in a commuting zone
- Actual young share The young share (ages 20-39) of the labor force (ages 20-64) in a commuting
zone
Commuting Zone-Level Regressions
Name Definition
Innovation variables
- Patent counts-to-population The number of patents of all firms in a commuting zone, adjusted for
truncation (see Hall, Jaffe, and Trajtenberg (2005) and Kogan, Papanikolaou,
Seru, and Stoffman (2017)). Scaled by the population of the commuting zone
measured in hundred thousands.
- Patent citations-to-population The weighted number of patent citations of all firms in a commuting zone.
Patent citations in a given year are weighted by the average number of
citations per patent in the same year (for details, see Hall, Jaffe, and
Trajtenberg (2005) and Kogan, Papanikolaou, Seru, and Stoffman (2017)).
Scaled by the population of the commuting zone measured in hundred
thousands.
Control variables
- Population size The population of a commuting zone
- Income per capita The income per capita of a commuting zone
- Growth rate of total income The growth rate of the total income of a commuting zone
- Government spending-to- Local government expenditures divided by the total income of a commuting
total income zone
- Educational attainment The ratio of people with a bachelor's degree or higher to the population aged
25 years or older in a commuting zone
- University patent counts-to- The number of patents of all universities in a commuting zone. Scaled by the
population population of the commuting zone measured in hundred thousands.

69
 Firm-Level Regressions
Name Definition
Innovation variables
- Patent counts The number of patents of a firm constructed as described above
- Patent citations The weighted number of patent citations of a firm constructed as described
above
- Citations per patent Mean number of forward citations per patent. Forward citations per patent are
scaled by mean of the same variable calculated using all patents in the same
grant year cohort.
- Proportion of extremely useful The proportion of a firm's patents in the top 1% of forward citations. Citations
patents are ranked relative to patents in the same grant year cohort.
- Proportion of useful and novel The proportion of a firm's patents in both the top 10% of forward citations
patents and the bottom 10% of backward citations in the same patent year cohort.
Citations are ranked relative to patents in the same grant year cohort.
- Volatility of citations per Standard deviation of the number of forward citations per patent. Forward
patent citations per patent are scaled by mean of the same variable calculated using
all patents in the same grant year cohort.
- Longevity of citations per Mean age of the newest forward citation per patent, where citation age is
patent measured relative to the grant year. Scaled by the mean of the same variable
calculated using all patents in the same grant year cohort and citation decile.
- Proportion of local citations Mean proportion of backward citations of a firm's patents to patents in the
firm's commuting zone (excluding self citations). Scaled by mean of the same
variable calculated using all patents in the same grant year cohort.
- Originality and generality Mean dispersion of citations across technology classes. Dispersion of
citations for a patent is measured as one minus the Herfindahl index of
citations. (See Trajtenberg, Henderson, and Jaffe (1997).) Citations are
backward citations for originality and forward citations for generality.
Control variables
- Total assets AT from Compustat
- Market-to-book (PRCC_F×CSHO)/(TXDITC+CEQ) from Compustat
- Cash flow-to-total assets OIBDP/AT from Compustat
- Stock returns Annualized mean daily stock returns
- Stock return volatility Annualized standard deviation of daily stock returns
Inventor-Level Regressions
Name Definition
Innovation variables
- Patent counts The number of patents of an inventor constructed as described above. For
each patent with N inventors, each inventor is credited with 1/N patents.
- Patent citations The weighted number of patent citations of an inventor constructed as
described above. For each patent with N inventors, each inventor is credited
with 1/N patent citations.
Control variables
- Inventor age The inventor's age measured from the date of his first patent
- Inventor patent stock The number of patents of the inventor
- R&D hub number of inventors The number of inventors working for the firm in the same commuting zone as
a given inventor
- Firm age The firm's age measured from the date of the firm's first patent
- Firm number of inventors The number of inventors working for the firm in any commuting zone
- Firm number of R&D hubs The number of commuting zones in which there is at least one inventor
working for the firm

70
 Appendix Table 2
Replication of Baseline Commuting Zone-Level Results Using Actual Age Structure

This table shows the replication of the results in Table 2 Panel A. Panel A of the current table uses the mean age of the actual labor force instead of the labor
force projected based on historical births. Panel B of the current table uses the mean age of both the projected and actual labor forces. ***, **, and * indicate
statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Actual Labor Force Only: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents/population per annum)
Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next year Next year Next year Next year Next 5 years Next year Next 5 years
Age structure -0.058** -0.055** 0.128*** 0.033 0.132*** 0.135*** 0.126*** 0.124***
(-2.00) (-2.03) (2.75) (1.03) (3.00) (3.23) (2.83) (2.97)
ln(Population size) 0.038 0.031 0.071* 0.055 0.066** 0.035 0.079** 0.048
(0.75) (0.66) (1.88) (1.43) (1.99) (1.12) (2.20) (1.45)
ln(Income per capita) 2.770*** 2.368*** 0.330 2.086*** 0.223 0.259 0.338 0.272
(5.09) (4.17) (0.44) (4.41) (0.30) (0.36) (0.45) (0.39)
Growth rate of total income 0.435 -0.174 -0.481 -0.588 -1.375 -0.983 -0.917 -0.647
(0.20) (-0.09) (-0.35) (-0.40) (-1.16) (-0.84) (-0.69) (-0.48)
Government spending-to- -8.783** -8.151*** -8.271*** -8.469*** -8.760***
total income (-2.43) (-2.70) (-2.75) (-2.65) (-2.83)
Educational attainment 9.187*** 6.743*** 7.018*** 7.513*** 7.877***
(5.75) (4.33) (4.70) (4.74) (5.26)
ln(1+University 0.590*** 0.330*** 0.342*** 0.325*** 0.332***
patent counts/population) (8.19) (5.15) (5.44) (4.41) (4.74)
State-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Observations 2,748 2,748 2,748 2,748 2,748 2,748 2,748 2,748
Adjusted R2 0.612 0.628 0.661 0.653 0.685 0.711 0.685 0.711

71
 Panel B: Both Projected and Actual Labor Forces: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents/population per annum)
Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next year Next year Next year Next year Next 5 years Next year Next 5 years
Projected age structure -0.108*** -0.105*** -0.131*** -0.144*** -0.143*** -0.134*** -0.145*** -0.130***
(-3.28) (-3.46) (-4.86) (-4.75) (-5.86) (-5.59) (-5.87) (-5.46)
Actual age structure -0.032 -0.031 0.171*** 0.078** 0.179*** 0.178*** 0.173*** 0.167***
(-1.04) (-1.03) (3.57) (2.21) (4.07) (4.24) (3.89) (3.96)
ln(Population size) 0.001 -0.005 0.028 0.008 0.020 -0.008 0.032 0.006
(0.01) (-0.11) (0.85) (0.24) (0.67) (-0.30) (0.99) (0.19)
ln(Income per capita) 2.545*** 2.161*** -0.102 1.699*** -0.176 -0.115 -0.067 -0.092
(4.33) (3.69) (-0.14) (3.45) (-0.26) (-0.17) (-0.10) (-0.14)
Growth rate of total income 0.083 -0.499 -0.967 -1.186 -1.946* -1.517 -1.495 -1.167
(0.04) (-0.23) (-0.66) (-0.75) (-1.69) (-1.38) (-1.19) (-0.98)
Government spending-to- -8.548** -7.730*** -7.878*** -8.043*** -8.377***
total income (-2.49) (-2.86) (-2.90) (-2.80) (-2.98)
Educational attainment 9.784*** 6.896*** 7.162*** 7.668*** 8.017***
(6.34) (5.00) (5.39) (5.46) (6.02)
ln(1+University 0.664*** 0.399*** 0.407*** 0.395*** 0.396***
patent counts/population) (8.40) (6.74) (6.94) (5.74) (6.02)
State-year fixed effects? Yes Yes Yes Yes Yes Yes Yes Yes
Observations 2,748 2,748 2,748 2,748 2,748 2,748 2,748 2,748
Adjusted R2 0.625 0.640 0.680 0.676 0.708 0.731 0.703 0.727

72
 Appendix Table 3
Replication of Baseline Firm-Level Results Using Annual Frequency and Fixed Effects for Commuting Zones
or Firms

This table shows the results of regressions of innovation on age structure. The regressions are the same as in Table 3
but with slight modifications. The four quinquennial periods from 1990 to 2005 are replaced with every year from
1990 to 2005. Panels A and B of this table add commuting zone fixed effects to Table 3. Panels C and D add firm
fixed effects to Table 3. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Commuting Zone Fixed Effects: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.035** -0.036*** -0.029* -0.029**
(-2.48) (-2.77) (-1.89) (-1.99)
Observations 58,504 58,504 58,504 58,504
Adjusted R2 0.441 0.473 0.394 0.430
Panel B: Commuting Zone Fixed Effects: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 1.222*** 1.118*** 1.055*** 1.017***
(3.87) (3.86) (3.01) (3.09)
Observations 58,504 58,504 58,504 58,504
Adjusted R2 0.441 0.473 0.394 0.430
Panel C: Firm Fixed Effects: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.019 -0.019** -0.017 -0.018*
(-1.50) (-2.20) (-1.20) (-1.74)
Observations 57,385 57,385 57,385 57,385
Adjusted R2 0.858 0.938 0.822 0.928
Panel D: Firm Fixed Effects: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 0.707** 0.562*** 0.576 0.523**
(2.35) (2.60) (1.62) (2.00)
Observations 57,385 57,385 57,385 57,385
Adjusted R2 0.858 0.939 0.822 0.928

73
 Appendix Table 4
Replication of Baseline Firm-Level Results for Various Robustness Tests

This table shows the results of regressions of innovation on age structure. The regressions are the same as in Table 3
but with slight modifications as indicated. ***, **, and * indicate statistical significance at the 1%, 5%, and 10%
levels, respectively.

Panel A: Adding Commuting Zone-Level Control Variables: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.031*** -0.035*** -0.040*** -0.044***
(-3.34) (-3.73) (-3.85) (-4.75)
Observations 14,086 14,086 14,086 14,086
Adjusted R2 0.435 0.462 0.384 0.414
Panel B: Adding Commuting Zone-Level Control Variables: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 0.871*** 0.953*** 1.099*** 1.206***
(3.43) (3.78) (3.89) (4.74)
Observations 14,086 14,086 14,086 14,086
Adjusted R2 0.435 0.462 0.384 0.414
Panel C: Dropping the 50 Most Populous Commuting Zones: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.031* -0.029* -0.033** -0.028*
(-1.93) (-1.92) (-2.07) (-1.73)
Observations 2,398 2,398 2,398 2,398
Adjusted R2 0.428 0.461 0.379 0.408
Panel D: Dropping the 50 Most Populous Commuting Zones: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 0.877** 0.872** 0.921** 0.816*
(2.06) (2.12) (2.15) (1.94)
Observations 2,398 2,398 2,398 2,398
Adjusted R2 0.428 0.461 0.379 0.408

74
 Panel E: Firm Age Measured from Founding Date: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.028*** -0.031*** -0.040*** -0.044***
(-2.78) (-2.95) (-3.62) (-4.11)
Observations 11,558 11,558 11,558 11,558
Adjusted R2 0.423 0.448 0.375 0.406
Panel F: Firm Age Measured from Founding Date: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 0.780*** 0.854*** 1.103*** 1.235***
(2.83) (2.97) (3.61) (4.07)
Observations 11,558 11,558 11,558 11,558
Adjusted R2 0.423 0.448 0.376 0.406
Panel G: Adding Managerial Age Control Variable: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.047*** -0.048** -0.079*** -0.077***
(-2.63) (-2.50) (-3.82) (-3.89)
Observations 3,591 3,591 3,591 3,591
Adjusted R2 0.530 0.554 0.487 0.516
Panel H: Adding Managerial Age Control Variable: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 1.282** 1.313** 2.205*** 2.144***
(2.58) (2.47) (3.92) (3.94)
Observations 3,591 3,591 3,591 3,591
Adjusted R2 0.530 0.554 0.488 0.516
Panel I: Adding Age Structure Dispersion Control Variable: Age Structure Measured Using Mean Age
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure -0.044*** -0.046*** -0.059*** -0.061***
(-3.99) (-4.45) (-4.78) (-5.59)
Observations 14,086 14,086 14,086 14,086
Adjusted R2 0.429 0.454 0.375 0.403
Panel J: Adding Age Structure Dispersion Control Variable: Age Structure Measured Using Young Share
Dependent variable is ln(1+patents per annum)
Patent counts: Patent counts: Patent citations: Patent citations:
Next year Next 5 years Next year Next 5 years
Age structure 1.208*** 1.271*** 1.627*** 1.678***
(4.01) (4.40) (4.73) (5.39)
Observations 14,086 14,086 14,086 14,086
Adjusted R2 0.429 0.454 0.375 0.403

75
 Appendix Table 5
The Effect of Age Structure on Productivity: Firm-Level Analysis

This table shows the results of regressions of productivity on age structure. The unit of observation is the firm-
quinquennial period. The sample and specifications are described in the text. Age structure is measured for the labor
force projected based on historical births. Variables are defined in Appendix Table 1. ***, **, and * indicate
statistical significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Age Structure Measured Using Mean Age

Dependent variable is total factor productivity
Next year Average of next 5 years
Age structure -0.008* -0.007
(-1.65) (-1.51)
Observations 9,083 10,199
Adjusted R2 0.331 0.238
Panel B: Age Structure Measured Using Young Share
Dependent variable is total factor productivity
Next year Average of next 5 years
Age structure 0.207* 0.174
(1.71) (1.43)
Observations 9,083 10,199
Adjusted R2 0.331 0.238

76