Capturing Knowledge: The Location Decision of New PhDs Working in

Industry

Albert Sumell, Paula Stephan, James Adams

SEWP 2005

Acknowledgements

Part of a larger project that was supported by a grant from the Andrew W. Mellon Foundation

Support has also come from the SEWP and NSF

Paper examines degree to which new PhDs going to work in industry remain in the state or MSA where they received their training.

Uses data that has only recently been coded from the Survey of Earned Doctorates, NSF.

Focus on PhDs trained in S&E

Research Question

Framing the Issue

Considerable interest in sources of knowledge inputs in the knowledge production function (Griliches)

Knowledge sources external to the firm have received considerable attention

Proximity to knowledge sources seen to be important in facilitating innovation

Studies of Knowledge Sources/Proximity

Knowledge sources often measured by such indices as university R&D expenditures in the state or MSA

Jaffe and others have shown there to be a significant relationship between proximity to knowledge sources and measures of innovation

Almeida and Kogut as well as Thompson have shown patent citations to be geographically concentrated

Knowledge Sources/ Proximity continued

Audretsch and Stephan flip question and examine extent to which available knowledge is utilized locally by examining the extent to which proximity plays a role in determining formal relationships between university scientists and biotech firms.

A&S find that proximity matters, but not that much; 70% of the ties were non-local.

The location decision of PhDs going to industry provides another lens for studying knowledge sources and the geography/proximity question.

PhDs possess new knowledge, much of which is of a tacit nature—acquired in the university lab.

Firms acquire knowledge by hiring new PhDs. One means by which knowledge is transmitted between universities and firms.

Placement of new PhDs also builds/reinforces networks and provides human capital to the firm.

Surveys indicate that placement of PhDs with industry is one means by which knowledge is transferred from the public sector to industry

PhDs as a Knowledge Input

Creating a highly skilled work force is one way universities contribute to economic growth

More generally, universities use the economic development argument as a lever for state funds.

– Stanford’s role in Silicon Valley, MIT and Harvard’s role in Route 128; Duke and UNC’s role in Research Triangle.

To extent students who go to work in industry leave, one rationale for investing state and local resources in graduate programs is weakened.

Story may be different for private institutions that don’t get funding from state.

Why States and Universities Care

Data Summary of findings by state and MSA Framework for analysis Empirical results Conclusions

Overview of Presentation

SED asks Ph.D. recipients to “name the organization and geographic location where you will work or study.”

Has never been coded for those going to industry; only coded for those going to academe.

We have coded the firm placements for years 1997-1999; currently updating to 2002.

Data misses individuals who take an academic postdoctoral position before going to industry as well as individuals who have not finalized their work plans at time questionnaire is filled out.

Data

17,382 Ph.D.s in S&E during 1997-1999 period planned to work in industry.

10,132 trained in “exact sciences” and engineering had made a definite commitment and identified specific firm

Summary of Data

Field Percent of all graduated identifying a firm

Percent of Firm Placements

All S&E 14.5% 100%

All Engineers 30.7% 53.0%

Agriculture 9.0% 3.0%

Astronomy 7.8% .4%

Biology 3.8% 6.0%

Chemistry 18.7% 12.0%

Computer Sciences 28.4% 7.5%

Earth Sciences 12.3% 2.t%

Math 12.5% 4.7%

Medicine 5.0% 4.3%

Physics 16.1% 6.5%

Firm Placement of New S&E PhDs by Field of Study

37% of all seasoned S&E PhDs were working in industry in 1999

Greater than 50% in chemistry and in engineering

33% in math/computer science 25% in life sciences

Industrial Employment Benchmarks for 1999

Findings with Regard to Retention of Newly Trained PhDs

37% remain in the state where trained 20.5% remain in PMSA where trained Substantial variation in retention rates across

regions, states and MSAs

Percent Staying In State of PhD

Percent Gain or Loss In the State of PhD

Certain States and Regions Stand Out

Pennsylvania retains 23.9% Indiana retains 12.2% Wisconsin retains 18.8% Pacific retains 69.4% Much of this is a Midwest story—major source

of new PhDs; Midwest states retain only 25%

Top 25 Producing MSAs of Industrial PhDs

Top 25 Producing MSAs of Industrial PhDs

Top 25 Destination MSAs of Industrial PhDs

Considerable Overlap

Eighteen metropolitan areas are in the top 25 in producing and employing

Some major producers have low retention rates: – Urbana-Champaign—3.2% retention– Lafayette, Indiana—2.9% retention– State College, Pa—3.3% retention– Madison—7.7% retention

CMSA N # that stay

% that stay

NY 732 423 57.8

SF 706 416 58.9

Boston 614 238 38.8

LA 525 233 44.4

DC 327 160 48.9

Top 5 Producing CMSAs

CMSA N N that stay

% that stay

Champaign

Urbana313 10 3.2

Detroit 304 102 33.6

Chicago 290 122 42.1

Atlanta 282 73 25.9

Austin 282 67 23.8

Lafayette 279 8 2.9

Next 6

Conclusions

Stay rates vary considerably by state Pacific region is a net importer California plays a special role: produces more, retains

more and hires more from out of state Major brain drain from Midwest. Indiana PhDs most likely to find employment in other

states: Stay rate is only 12%

Empirical Analysis

View migration as an investment decision Analysis focuses on whether the PhD leaves

either the state or the city of training Individual is the unit of analysis

Variables

Three sets of variables: – Variables that reflect attributes of state and local

area– Variables that reflect individual characteristics– Variables that reflect field differences, and

institutional characteristics– Logit equations estimated; marginal effects reported

Findings (Tables 6 and 7)

Certain demographic factors affect mobility in expected way: marital status, being a temporary resident.

Where you went to high school and college matters Networks matter: those who worked are more likely to

stay; those who are returning to a job are more likely to stay.

Those with debt more likely to leave

Some of these effects are quite large

Temporary residents 7 percent more likely to leave state or MSA.

Those who earn PhD in same state they went to college in are 12% more likely to stay in state; 4% more likely to stay in city.

Those who got PhD in same state they went to high school and college in are 18% more likely to stay in state

“Best” are more likely to leave

In five of ten fields studied (engineering, biology, chemistry, math and medicine) individuals trained at a top program are significantly more likely to leave state than are those from “non-top” programs

Marginal effects can be quite large—math 10% Four of top program variables negative and significant

in the PMSA equation Individuals supported on fellowships more likely to

leave

Technological Infrastructure Matters

More likely to stay in state higher are state industrial R&D expenditures

More likely to stay in PMSA higher the patent count; larger the Milken index

What we call absorptive capacity matters as well:

ABPhDi= (NPhDIi /PhDIi)/(ΣNPhDIi/ΣPhDIi)

Per Capita Income

Individuals are more likely to stay in states with higher per capita income.

We do not find per capita income to be significant in PMSA equation

Public Results

Limit analysis to public institutions Results are reasonably similar Finding that many of the “best” leave persists

– In terms of quality– In terms of having been supported on a fellowship

Role of local amenities

Sumell is using data to explore the role that local amenities play in attracting PhDs to work in an area.

Estimates a nested logit model of location decision of new PhDs

Has numerous measures of amenities—including natural and publicly provided

We explore degree to which the decision to remain in PMSA is affected by relative desirability of local area with regard to sun light, temperature and humidity

Variables/results

Relative measure of January and July temperatures

Relative measure of January sunlight Relative measure of July humidity Results are counterintuitive: suggest

individuals are more likely to leave sunny winter climates and stay where temperatures are considerably higher in the summer

Conclusion

States and MSAs capture knowledge but not at an overwhelming rate.

Whose knowledge is captured? Certain characteristics predispose individuals to stay– Married, returning to a job, home grown– “Best” are more likely to leave;

Quality of program Fellowship support

Conclusion continued…

S&Es more likely to stay in high tech areas as measured by patent counts, R&D expenditures, etc.

Absorptive capacity matters

Proximity

When knowledge is tacit, proximity matters But proximity to what? Simplifying assumption is that

tacit knowledge sticks to its source: the University. Our research reminds us that tacit knowledge is not as

sticky to the university as some would think. It’s proximity to scientists that matter and scientists—

especially freshly minted scientists—are mobile; tacit knowledge becomes embodied in an input to the firm

Reminiscent of Audretsch and Stephan work that finds that proximity matters but it doesn’t matter that much.

University and state capture but a small piece of this.

Raises the Question: Is Proximity to the University Overemphasized?

Carnegie Mellon survey of firms asks for sources of public knowledge

The top source (publications/reports) does not require proximity to knowledge source.

Second source facilitated by proximity but proximity not essential (informal information exchange, public meetings or conferences and consulting)

Next tier includes recently hired graduate students—we’ve just shown proximity not that important.

Conclude

If firms know what they are looking for, proximity to the university is not that important. Firms can “buy” the input. (Relates to a Mansfield result)

Proximity to the university is most important when firm does not know what it is seeking or does not want to heavily invest in search.

Nonappropriability?

Discussion raises further question of degree to which spillovers result from nonappropriability

Tacit knowledge comprises an important component of the knowledge that new PhDs transmit to firms.

Yet tacit knowledge (Zucker, Darby, and Brewer 1998) facilitates excludability

Means that knowledge transmission can result from maximizing behavior of scientists who have the ability to appropriate the returns to this tacit knowledge rather than from nonappropriability

The state perspective: Why?

States often invest in higher education with conviction that it stimulates economic development.

Universities use such an argument as a lever for resources.

Our work casts doubt on benefits states realize from one piece of the investment: doctoral students.

Why continued…

Are benefits produced while students sufficient? Meet state R&D needs? Purdue supplies 21% of Indianapolis

industrial hires Is halo of having a top rated program beneficial to state in other

ways? Is what we observe an indication of disequilibrium? Can “Purdues” and “Illinoises” continue? Are policy makers ignorant of degree to which it is a leaky

system? Is small firm lobby extremely effective? Do results explain investment in the margin in science parks,

venture capital funds, etc? Case of University of Minnesota

Usual Caveats

Data base misses individuals who do not have definite plans; individuals who go from post doc to industry are not counted in industrial employment.

Econometric issues: modeling spatial effects; selection bias in terms of who answers the questionnaire.

1997-1999 were boom years in the U.S.; may cloud the results

Interested in the data?

Workshop sometime next fall NSF/SEWP sponsored Focus on uses and potential uses of SRS

generated NSF data on scientists and engineers

Let me know if you or a student/young researcher are interested in participating