Innovation and Human Capital Policy

If innovation is to be subsidized, a natural place to start is to increase the quantity and quality of human capital. Innovation, after all, begins with people. Simply stimulating the “demand side” through R&D subsidies and tax breaks may only drive up the price, rather than the volume of research activity. By contrast, increasing the supply of STEM human capital can both directly increase innovation and reduce its cost. This paper examines the evidence on alternative human capital policies for innovation including expanding the homegrown workforce, fostering immigration, boosting universities and reducing barriers to entry into inventor careers, especially for underrepresented groups. We argue that targeting high ability but disadvantaged potential inventors at an early age will have the largest long-run effects.