This paper estimates the effect of innovation on employment at the firm level. Our uniquely long innovation panel data set of German manufacturing firms covers more than 20 years and allows us to use various innovation measures. We can distinguish between product and process innovations as well as between innovation inputs and innovation outputs. Using dynamic panel GMM system estimation we find positive effects of innovation on employment. This result is robust to the use of product and process innovations as well as for innovation input and output.JEL Code: O30, L60, C23, J23.

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This paper analyzes empirically the effects of innovation on employment at the firm level using a uniquely long panel dataset of German manufacturing firms. The overall effect of innovations on employment often remains unclear in theoretical contributions due to reverse effects. We distinguish between product and process innovations and introduce in addition different innovation categories. We find clearly positive effects for product and process innovations on employment growth with the effects for process innovations being slightly higher. The effects are stronger in small firms and differ between firms in former West and East Germany.JEL Codes: J23, O30, L60

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