Economic and Social Benefits of Medical Innovation

Technology is, to a remarkable degree, a local not global asset.  Research has established that innovation in high tech industries is enhanced by geographic concentration, which facilitates R&D spillovers.  Proximity facilitates collaboration, technological spillovers and enhances innovative productivity.  All of these benefits are facilitated by an environment of secure intellectual property rights and safeguards for innovation.   The success of America’s most cutting-edge and technologically sophisticated industries is inextricably linked to strong IP enforcement.  Moreover, given the nature of high tech innovation, it is not surprising that the United States accounts for more than 80 percent of the world’s biotech research and development.  Consequently, the American biopharmaceutical industry alone supports more than four million jobs. 

The “United States is the epicenter of prescription drug research for the planet producing more new drugs than all other countries combined”. [1]   The continued success of this economic engine depends on intellectual property rights, the industry’s lifeblood.  In particular, the biopharmaceutical industry is a source of high-paying jobs, with wages markedly higher than those of other industries.  As evidence of this, consider the chart below which plots average salaries in Delaware across a variety of industries.  The average wage in the biopharmaceutical industry is more than double the average wage across all industries in Delaware.  This is true of the industry in other states as well.  New Jersey’s biopharmaceutical and medical technology industries provided 147,836 jobs in 2008, with an average base salary of more than $110,000. [2]  Notably, biopharmaceutical wage growth is also outpacing other industries.  In Delaware, the average biopharmaceutical wage grew 22.8% between 2002 and 2007, while the state average was 15.5%. [3]

Perhaps the most important characteristic of employment in the biopharmaceutical industry is the multiplier effect.  That is, each job created by the industry results in the creation of additional jobs within the economy as a whole.  Industry spending furthers additional economic activity, and the initial economic impact is magnified through multiple rounds of purchases.  This subsequent economic activity generates new jobs as the expenditure moves through the economy through repeated rounds of spending.  It is worth noting that the Pharmaceutical and Medical Manufacturing Industry is associated with the highest earnings multiplier and the largest employment multiplier. 

Beyond the pharmaceutical and medical manufacturing industries, innovation and its protection through the enforcement of intellectual property rights are important to other job-multiplying industries.  Although a nascent industry in 1999, the biotechnology employed 150,800 workers and generated an additional 287,000 jobs for a total of 437,000 jobs attributable to the biotechnology industry in 1999.  The employment multiplier in the biotechnology industry was estimated to be 2.9 by Ernst and Young (2000). [4]

Intellectual property rights are at the heart of the pharmaceutical industry and the lifeblood of the US advantage in high technology sectors.  Their effective enforcement safeguards the viability of these sectors and the jobs that they provide to the US economy.  In addition, it ensures continued growth and job creation for some of America’s most valuable producers.   Relative to other industries, these sectors generate employment at a more rapid rate, provide greater average compensation to employees, and multiply jobs within the extended economy to a larger extent. 

Strong intellectual property rights and enhanced enforcement will preserve US jobs and health.

Sources:

  1. Turner GM. “Pay Tomorrow for Cheap Drugs Today”, Galen Institute, 28 July 2003. 
  2. HealthCare Institute of New Jersey (HINJ).  “2009 Report:  Economic Impact of HINJ Members Totals a Record $29 Billion,” 18 June 2009.
  3. Brown, Daniel T., Simon Condliffe, and Edward C. Ratledge.  “Economic Impact on Delaware’s Economy:  The Biopharmaceutical and Related Sectors,” Center for Applied Demography and Survey Research, University of Delaware, Economic Impact Studies, July 31, 2009.
  4. Ernst & Young Economics Consulting and Quantitative Analysis.   “The Economic Contributions of the Biotechnology industry to the U.S. Economy,” prepared for the Biotechnology Industry Organization, May 2000.  

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