Which Employees Benefit from Employers' Open Innovation Activities?

We use a stakeholder bargaining power lens to investigate the effect of the firm’s adoption of an open innovation strategy on its employees’ wages. We work on the premise that firms need to share with their employees some of the economic benefits derived from open innovation. However, we predict considerable heterogeneity in the benefits accruing to different types of employees. We argue that R&D workers are critical for implementing and exploiting the ideas that emerge from external collaborative innovation activities and suggest that R&D workers as opposed to other types of employees in firms that adopt an open innovation approach will enjoy increased earnings. This effect depends also on the level of organizational inertia induced by R&D workers’ tenure. We suggest that the positive effect of adopting an open innovation approach on R&D workers’ wages will be stronger for R&D workers with shorter tenure. Finally, R&D worker bargaining power depends both on internal demand following adoption of an open innovation approach and the opportunities to change employer. We conjecture the effect of open innovation on increasing R&D workers’ wages will increase with the level of competition in the industry. Our analysis using Danish employer-employee matched data provides overall support for our predictions.