Innovation and Employment in European Firms: Microeconometric Evidence

Innovation and Employment in European Firms: Microeconometric Evidence


European Commission

Period: 01.07.2001 – 31.12.2004

Innovation is widely considered to be a primary source of economic growth and policies to stimulate firm-level innovation are high on the agenda in most countries. This research project is aimed at the exploration of the impact of innovation on employment at the firm level, using microeconometric techniques. In order to understand underlying mechanisms different aspects of innovation are focussed on: the impact of innovation on productivity, on product market competition, on cooperation as well as on employment. One major aim of the project is a comparable analysis of employment effects of innovation in the countries participating the EU-project (France, Great Britain, Spain and Germany). The econometric analyses are based on the third european-wide harmonised Community Innovation Surveys (CIS 3).

In the first part of the project the relationship between innovation input, innovation output and productivity is analysed. The aim is to quantify productivity effects of innovation activities in general and R&D activities in particular. A new output oriented view on innovation impact is applied. Within this approach the relationship between innovation input and output is explicitly modelled (Crèpon, Duguet, Mairesse 1998). A selection biased simultaneous equation system is econometrically estimated. The econometric results confirm significant productivity effects of innovation in the German manufacturing sector. First comparative results for Germany and Sweden give reason for a common story in a cross-country comparison. At present, this model is estimated for all participant countries using a common specification to get comparable results.

Both process and product innovation are expected to impact employment through different channels, and some impacts imply the reduction of labor for given tasks (“displacement effects”), while others imply the “creation” of new labor needs (“compensation” effects). Within the project, Harrison et al. (2004) developed a new model which is well-suited for analysing the employment impacts of innovations using the specific information provided by CIS data and which allows to disentangle the different effects at work. One interesting aspect of the approach is that it establishes a theoretical link between the employment growth and the innovation output in terms of the sales growth generated by new products as well as efficiency gains attributable to process innovations. The econometric results confirm that in all countries successful product innovations have a positive impact on employment growth. This impact tends to be larger in manufacturing than in service firms, although the difference is statistically not significant. Results for Germany further provide evidence that employment effects do not vary with the product novelty degree, i.e., new jobs are not only created in firms launching market novelties, but also in firms which successfully pursue product imitation strategies. The impact of process innovations on employment growth turns out to be variable across countries. In Germany and the UK, process innovations tend to displace employment in manufacturing while in Spain compensation effects dominate.

In another part of the project, the extent to which European firms engage in co-operative behaviour is analysed. It uses the framework developed in Cassiman and Veugelers (2002) that looks at the effects of both incoming and outgoing knowledge spillovers on the likelihood of engaging in co-operative R&D. The results support those in CV, in that there is a positive relationship between the likelihood of undertaking a co-operative agreement and both incoming knowledge spillovers and the extent to which firms find strategic methods important in appropriating the returns to innovative activity.

Further information on the project, cooperation partners as well as results and papers are available on the official homepage of the project (IEEF).

Project members

Bettina Peters

Bettina Peters

Stellvertretende Leitung

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Norbert Janz

Norbert Janz

Senior Researcher

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Selected Publications

Understanding co-operative R&D activity: Evidence from four European countries

Abramovsky, Laura, Elisabeth Kremp, Alberto López, Tobias Schmidt and Helen Simpson (2009), Understanding co-operative R&D activity: Evidence from four European countries, Economics of Innovation and New Technology 18(3) , 243-265

Innovation and Productivity Across Four European Countries

Griffith, R., E. Huergo, Jacques Mairesse and Bettina Peters (2006), Innovation and Productivity Across Four European Countries, Oxford Review of Economic Policy 22(4) , 483-498

Firm-Level Innovation and Productivity - Is there a Common Story across Countries?

Janz, Norbert, Hans Lööf and Bettina Peters (2004), Firm-Level Innovation and Productivity - Is there a Common Story across Countries?, Problems and Perspectives in Management 2 , 184-204