Firms employing scientists and engineers are riskier for investors

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 and are entrenched in the company, which means that staff turnover is much lower.

Researchers at Leeds University Business School 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, engineering or mathematics (STEM) 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’ stock price Beta was higher in industries where more STEM workers were employed. Beta is a measure of a stock’s volatility in relation to the overall market, and this amplifies the stock price movement in relation to the market. So, if the market goes down 10% and the company Beta is 2, then the stock price will fall by 20%.

On average, an extra 20% of wage bill spent on STEM workers was linked to an increase in beta by between 9% and 17%. This effect persisted having employed a wide range of model specifications and controls.

In addition, firm profits are more sensitive to changes in their sales income when firms rely more heavily on STEM workers. Because of this risk, investors in these firms demanded a higher return for holding the stock.

STEM workers cost more but are often too important to lay off, making firms unresponsive to downturns. The 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 this creates increases the volatility of the cash flows of the firm as it becomes more exposed to a systematic risk. The risk associated with the employment of STEM workers must therefore 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. This research also emphasises the importance of diversification in the construction of any portfolio.

The research was presented at the annual conference of the British Academy of Management in September 2021.



Guy Dixon, Media Relations, Leeds University Business School: 07954 277 539 or


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.

2. The British Academy of Management is holding its 35th annual conference from 31 August-3 September 2021 online. Around 600 presentations are given, along with workshops and other events. The Academy is the leading authority on the academic field of management in the UK, supporting and representing the community of scholars and engaging with international peers. It has over 2,000 members, from the UK and around the globe, who include management researchers, scholars, practitioners and doctoral students.