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Employment growth from public support of innovation in small firms (Link & Scott 2012)

Citation

Link, A., & Scott, J. (2012). Employment growth from public support of innovation in small firms. Economics of Innovation and New Technology, 21(7), 655-678.

Highlights

    • The study’s objective was to examine the effects of the Small Business Innovation Research (SBIR) program, a competitive program providing small businesses with funding for technological innovations, on employment growth of SBIR-recipient firms.
    • The study used regression analysis to compare firms’ actual levels of employment in 2005 with the levels of employment predicted by their characteristics before receiving the Phase II award.
    • The study found no statistically significant relationships between SBIR funding and firms’ employment.
    • The quality of causal evidence presented in this report is low. This means we are not confident that the estimated effects are attributable to SBIR funding; other factors are likely to have contributed.

Intervention Examined

The SBIR Program

Features of the Intervention

Established in 1982, the SBIR program was a competitive awards-based program with the goal of encouraging technological innovation among domestic small businesses. Each year, federal agencies with external research and development budgets that exceeded $100 million were required to allocate 2.8 percent of their research and development budget to their own SBIR programs. The program was structured in three phases. The objective of the first phase was to enable small businesses to evaluate the technical merit, commercial potential, and feasibility of a proposed project. Phase II awards were intended for businesses to continue the efforts begun in Phase I and further develop their proposed projects. Businesses pursued further work and commercialization in Phase III; however, SBIR funds were not involved in this phase. The study examined the impact of receiving a Phase II award on subsequent firm employment.

Features of the Study

The study used data from a survey conducted by the National Research Council in 2005 on 11,214 small firms that received SBIR Phase II awards made from 1992 to 2001. Employment data covered two points in time: when the Phase II award was given and when the survey was conducted in 2005. To estimate the impact of receiving a Phase II award, the authors compared firms’ actual levels of employment in 2005 with the levels of employment predicted by their characteristics before receiving the award.

Findings

    • The study found no statistically significant relationships between SBIR funding and firm employment.

Considerations for Interpreting the Findings

The authors examined only firms that received Phase II awards. Instead of comparing these firms to a comparison group of firms that did not receive awards, they used characteristics of the firms before the award to predict how employment at the firms would have changed in the absence of the award. Because the firm served as its own control, the CLEAR guidelines require that authors examine the outcome at multiple time points before the intervention to rule out the possibility of selection into the intervention due to trends in the outcome. This study measured the number of employees at only one time point before award receipt, so it does not meet the criteria for a moderate or high rating.

Furthermore, the analyses included controls for firm characteristics, but these characteristics might have differed among firms receiving Phase II awards and firms not receiving awards, so the characteristics of firms receiving awards might not predict employment at firms not receiving awards. Any findings could reflect differences in these characteristics as well as any effects of the intervention.

The authors noted that the response rates to the survey data used in the analysis were low (23 to 36 percent), although they attempted to control for nonresponse bias in their model. Thus, findings might not be generalizable to the full sample of firms receiving Phase II awards.

Causal Evidence Rating

The quality of causal evidence presented in this report is low because the authors did not examine pre-intervention trends in the outcomes. This means we are not confident that the estimated effects are attributable to SBIR funding; other factors are likely to have contributed.

Reviewed by CLEAR

April 2016