Impact of Innovation on Employment and Skill Upgrading

21 Pages Posted: 20 Jan 2015

See all articles by Jože P. Damijan

Jože P. Damijan

University of Ljubljana, Slovenia - Department of International Economics

Črt Kostevc

University of Ljubljana - Faculty of Economics

Metka Stare

University of Ljubljana

Date Written: July 2014

Abstract

The paper investigates the dual effect of innovation on employment and skill upgrading in manufacturing and service industries. Based on the Harrison et al (2008) approach and using four waves of CIS data for the period 2004-2010 for 23 European countries, we find that product innovation has a consistent positive effect on employment growth. This effect is similar for manufacturing and service industries. Process innovations are found to exhibit labor displacement effects for manufacturing, but no negative effects for service industries, while organizational and marketing innovations reveal a consistent positive impact on employment. We also study the impact of innovation on skill upgrading and find that increasing the share of firms engaged in process innovation by 10 percent will lead to an increase in share of high skilled labor by 2 percent, while increasing the share of firms engaged in organizational and marketing innovation by 10 percent will lead to an increase in share of high skilled labor by 4 percent and an increase in share of scientific workers by 2 percent. These effects of innovation on demand for skilled labor are, however, limited mainly to manufacturing sector, while in service industries these effects are lower by some 60 to 80 percent. Finally, we also control for the impact of Chinese import penetration and find no significant impact on employment growth, but find a strong positive impact on skill upgrading. Our results indicate that increasing the share of Chinese imports in total imports by 10 per cent leads to an increase in share of high skilled labor by 2 percent. These findings are consistent with the "trapped factor" model of innovation developed by Bloom et al (2011).

Suggested Citation

Damijan, Joze P. and Kostevc, Crt and Stare, Metka, Impact of Innovation on Employment and Skill Upgrading (July 2014). Available at SSRN: https://ssrn.com/abstract=2552421 or http://dx.doi.org/10.2139/ssrn.2552421

Joze P. Damijan (Contact Author)

University of Ljubljana, Slovenia - Department of International Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia
+386 61 189 24 00 (Phone)
+386 61 189 26 98 (Fax)

Crt Kostevc

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Metka Stare

University of Ljubljana ( email )

Dunajska 104
Ljubljana, 1000
Slovenia

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