Does Innovation Stimulate Employment? A Firm-Level Analysis Using Comparable Micro-Data from Four European Countries

Abstract

This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.

Innovation and Firms’ Productivity Growth in Slovenia: Sensitivity of Results to Sectoral Heterogeneity and to Estimation Method

“…A common explanation for this may be the different displacement and compensation effects of product and process innovations. As shown by Harrison et al (2005) and Hall et al (2007), due to demand effect, product innovation may likely result in employment growth, while process innovation is likely to have labor saving effects.…”

“…This is based on the findings that process innovations have labor displacement effects and are expected to result in significant productivity growth, while, due to the demand effect, product innovations may likely cause employment growth and, thus, may not result in significant productivity growth (Harrison et al, 2005;Parisi et al, 2006;Hall et al, 2007). Evidence on changes in employment after a firm has conducted some innovation, however, do not confirm these differentiated expectations (see Table B1 in Appendix).…”

“…The findings of Harrison et al (2005), Griffith et al (2006), Parisi et al (2006), and Hall et al (2007) tend to demonstrate that process innovations have labor displacement effects and are therefore expected to result in significant productivity growth, while, due to the demand effect, product innovations may likely cause employment growth and, thus, may not result in significant productivity growth.…”

Environmental Innovation and Employment Dynamics in Different Technology Fields - An Analysis Based on the German Community Innovation Survey 2009

“…Harrison et al 2008). This may be the case if process innovations lead to a higher productivity within the firm accompanied by a given output.…”

“…There are cross-sectional studies such as Entorf and Pohlmeier (1990) (Greenan and Guellec 2000) and in a comparative study for France, Great Britain, Germany and Spain based on harmonised data of the Community Innovation Panel (CIS) (Harrison et al 2008).…”