01 Sep 2021

Firms employing many scientists and engineers are riskier for investors, research says 

Firms employing many scientists and engineers are riskier for investors, research says 

A highly skilled workforce of scientists and engineers may boost companies’ performance but makes them a riskier investment on the stock market, research shows.

This was because firms with high numbers of scientists and engineers are more inflexible because they are expensive to employ, are entrenched in the company, and so staff turnover is much lower, the British Academy of Management online annual conference heard today [Wednesday 1 September 2021].

Three researchers from Leeds University BusinessSchool analysed data from 1997 to 2018 on 14,786 firms in 16 countries, including the UK, that were listed on the stock market.

Dr Chieh Lin, Professor Steven Toms and Professor Iain Clacher looked at the wage share – the percentage of the total wage bill – spent on staff working in science, technology, engineers or mathematics, known as STEM workers, in 269 industries, such as transport, manufacturing and education. 

They found that in those industries where companies spent more of their wage bill on STEM workers, the stock market value of firms was more volatile.

Firms’ “Beta measure” grew in industries where more STEM workers were employed. Beta is a measure of a stock’s volatility in relation to the overall market, where a stock that swings more than the market over time has a beta of more than 1.0.

On average, an extra 20% of wage bill spent on STEM workers was linked to an increase in beta by between 9% and 17%.

Also, firms’ profits became more sensitive to changes in their sales income as the firm relied more heavily on STEM workers. Because of this uncertainty, investors in the firms demanded a higher return.

STEM workers cost more but are often too important to lay off, making firms unresponsive to downturns. An average STEM worker earns $91,000, compared with $47,000 for non-STEM staff. STEM workers account for around 13% of total workforce and 23% of total wages and salaries in the US.

“STEM workers are at the centre of the global competition for talent due to their ability to leverage advanced technology both effectively and productively,” Dr Lin told the conference.

“While the contribution of STEM workers to high value-added activities such as R&D and innovation, and therefore growth, is typically emphasised, limited attention has been paid to the risk that a STEM-intensive workforce may entail for individual firms.

“We argue that reliance on STEM workers reduces the operating flexibility of firms by increasing the degree of fixity in labour costs, and therefore total operating costs.

“The operating leverage thus created increases the volatility of cash flow as it becomes more exposed to systematic risk. The risk associated with the employment of STEM workers must be balanced against their contribution to innovation and growth. 

“Investment in STEM workers amplifies both the downside risk and upside potential of firms, but with the former effect being more dominant.

“The stocks of STEM worker-intensive firms are riskier due to higher exposure to systematic risk. Investors demand a high return on stocks of STEM worker-intensive firms to compensate for a higher exposure to systematic risk.”

Dr Lin said that while stocks of STEM-intensive firms are risky investments in general, exceptions such as Amazon and other tech giants were possible given their robust business models.

• The researchers controlled for the effects of several factors such as firm size, indebtedness and growth, in order to study the effect of STEM employment in isolation.

For more information, please contact:  

Tony Trueman
British Academy of Management

Tel: +0044 (0) 7964 023392 
[email protected]



1. To construct the STEM index, the researchers obtained industry-level occupational employment and wage estimates from the Occupational Employment Statistics program of the US Bureau of Labor Statistics. Industries are classified by four-digit North American Industry Classification System (NAICS) code. Their baseline sample consists of 6,146 US non-financial firms with common stock listed on NYSE, AMEX, and NASDAQ between 1997 and 2018. They also replicated the analysis for publicly listed firms in 15 countries: Canada, France, Germany, Italy, Japan, the United Kingdom, Austria, Belgium, Denmark, Finland, the Netherlands, Norway, Spain, Sweden and Switzerland. They noted which of the 269 industries the firm was in and related the wage share of STEM workers in this industry to the individual firm’s beta and future realised returns.