Addendum to Post "Tokyo Telling Companies To Hire More PhDs"
Why PhDs Matter For Corporate Innovation
Several readers of my latest post questioned whether hiring more PhDs really added to innovation in Japan (or anywhere). A study by Professors Yuya Ikeda and Tomohiko Inui shows that they do. I intended to discuss this in a later post, but let me give the high points here. Also, please read this post to show the decline in Japan’s technological and commercial innovation.
1) Among 12,000 companies with at least ten regular workers, only 600 employed PhDs. Even among 1,100 large firms, only 186 employed even a single PhD. While half of inventors in the US have a PhD, in Japan, only 10% do.
2) Among large companies, 40% of those employing at least some PhDs had produced product innovations, and 43% had produced process innovations, compared to just 20% for firms without any PhDs. There were similar, albeit a bit smaller, results among mid-sized firms. That’s a difference of around 20-25% percentage points.
3) When one takes into account other factors in innovation—R&D budget, firm size, selling in foreign markets, etc.—the additional benefit of hiring PhDs is less but still quite sizeable: employing PhDs added 9 to 14 percentage points (among large and medium firms respectively) to the share of firms developing important product innovations and 14 to 12 points vis-à-vis process innovations. So, having PhDs accounted for around half of the difference in company innovation.
4) In Japan, a large share of the PhDs employed at companies did not get their doctorates at a university but by doing a dissertation based on their research at their employer. They were initially hired at the bachelor's or master’s level. The latter account for half of PhD inventors in Japan. Researchers awarded their PhDs this way had significantly fewer patent applications and citations of their work than those whose PhD was gained through a university course.
Most importantly, a study of European companies found that it’s not just the “upstream” companies—the ones that create patents, scientific papers, and other innovations—whose performance is improved by hiring more PhDs. Hiring PhDs also helps the “downstream” companies—the ones specializing in production and marketing—who use the innovations of the upstream companies to improve their own products and processes. Not surprisingly, then, they also hire PhDs. This reinforces our point in this series of posts that Japan’s problem is not just a decline in the creation of new knowledge. Perhaps even more critical is the deterioration in the ability of companies to absorb the knowledge available in the world. The dearth of PhDs at Japan’s companies is not the only factor, but it’s a major one. (see the last chart in my recent post).