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  • W O R K I N G P A P E R 2 0 1 7 : 5 1

    The Knowledge Spillover Theory of Intrapreneurship,Labour Mobility

    and Innovation by Firm Size

    Pontus Braunerhjelm, Ding Ding and Per Thulin








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  • The Knowledge Spillover Theory of Intrapreneurship, Labour

    Mobility and Innovation by Firm Size*

    Pontus Braunerhjelm KTH Royal Institute of Technology, SE-100 44 Stockholm, Sweden1

    Ding Ding KTH Royal Institute of Technology, SE-100 44 Stockholm, Sweden

    Per Thulin KTH Royal Institute of Technology, SE-100 44 Stockholm, Sweden


    Presenting The Knowledge Spillover Theory of Intrapreneurship, we examine how labour mobility impacts innovation distributed on firm size. A matched employer-employee dataset, pooled with firm-level patent application data, is implemented in the analysis. We provide new evidence that knowledge workers’ mobility has a positive and strongly significant impact on all firms’ innovation output, measured as patent applications. The patterns and effects differ between large and small firms. More precisely, for small firms, intraregional mobility of knowledge workers that have previously worked in a patenting firm (the learning-by-hiring effect) are shown to be statistically and economically highly significant, whereas only limited impact could be detected for firms losing knowledge workers (the-learning-by-diaspora effect). Keywords: Labour mobility; knowledge diffusion; innovation; social networks JEL classification: J24, O31, R23

    * We would like to thank the participants in the workshop “Labor market rigidities, human capital and innovation”, held in Washington, D.C. on October 21, 2013, the 15th International Conference of the International Joseph A. Schumpeter Society (ISS) in Jena, Germany July 27–30, 2014, and James Albrecht, Gunnar Eliasson and Hans Lööf for valuable comments. Financial support from the Marianne and Marcus Wallenberg’s Foundation is gratefully acknowledged. 1 Pontus Braunerhjelm and Per Thulin are also affiliated with Swedish Entrepreneurship Forum.

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    1. Introduction

    According to the knowledge spillover theory of entrepreneurship (Acs et al., 2009), start-

    ups is one way of diffusing and converting knowledge into societal utility. The underlying

    mechanism refers to innovation in the Schumpeterian sense, realized by exploiting

    opportunities originating in knowledge overlooked or neglected by incumbents. A parallel

    mechanism, not addressed in the original version of the knowledge spillover theory of

    entrepreneurship (KSTE), has to do with labour mobility. More precisely, R&D-workers that

    move between firms can be expected to diffuse knowledge and to improve the matching of

    individuals’ heterogenous knowledge, thereby generating more of innovations. We argue that

    labour mobility associated with engagement in innovative activities, can be defined as a

    decisive factor in promoting intrapreneurship, which complements regular entrepreneurship in

    bringing forth innovations. Hence, in the current analysis we will merge insights from the fields

    of labour market economics, entrepreneurship and innovation to investigate how mobility

    influence innovation across firms of different size.

    There is an overwhelming and convincing literature concluding that new and small firms

    play a disproportionately large role in forwarding radical innovations. The reasons are allotted

    a number of factors such as internal organization structures in large incumbents, so called

    business stealing effects, and individual and cognitive traits, to mention a few.2 Previous

    research relating labour mobility to innovation is considerably more limited and remain

    inconclusive (Agrawal et al., 2006). An early contribution was provided by Almeida and Kogut

    (1999), showing that inter-firm mobility of engineers in Silicon Valley frequently were major

    patent holders and that they exerted a strong influence on firms’ learning processes. More

    recently, these results have been corroborated by Oettl and Agrawal (2008), who claim that

    such knowledge flows accrue not only to the firm receiving employees but also to the firms that

    2 For a survey, see Braunerhjelm (2011).

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    lose workers. The latter effect is due to increased knowledge flows and expanded social

    (knowledge) networks. Also, Kaiser et al. (2015) and Braunerhjelm et al. (2014) found a

    positive association between labour mobility and innovation, measured as patent applications.

    However, a negative relationship between innovation and mobility of highly qualified labour

    has also been established in previous literature (Balsvik, 2011; Parrotta and Pozzoli, 2012).3

    Our prime interest in the current paper is to examine the influence of mobility of

    knowledge (R&D) workers on innovation on firms distributed on separate size classes; small

    firms defined as those having less than 50 employees, and medium-sized and large firms

    defined as those having more than 49 employees.4 The analysis will take into account both

    learning by hiring (firms receiving knowledge workers) and the diaspora effect (firms losing

    knowledge workers). To accomplish this, we will utilise a unique, matched Swedish dataset of

    employers and employees that features a number of characteristics at the individual, firm and

    regional levels (including patent applications) and allows us to track the movement of

    individuals among firms to investigate the ensuing effects on innovation.5 In our study, only

    patenting firms qualify as innovative, i.e., those firms that have filed at least one patent

    application. Non-patenting firms are considered non-innovators.

    We provide a number of new insight regarding the relationship between labour mobility,

    innovation and how it affects firms of different size. We believe this is the first study to use

    extensive register data (a population) to investigate the size dimension when analysing how

    labour mobility influence innovation (and one of the very few addressing this issue at all).

    Second, we control for other labour market categories, such as newly graduated knowledge

    3 See also Cassiman et al. (2011), who claims that participation in joint ventures is more conducive to innovation than labour mobility. 4 This is in accordance with the EU’s definition of small firms (less than 50 employees). 5 Similar comprehensive data that are accessible for research can only, as far as we know, be found in Denmark, Finland and Norway.

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    workers and joiners of unknown origin.6 This extension could be potentia


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