Employment Effect of Innovation - European Commission JRC

  • Innovation Team profile
    Innovation Team
    29 January 2016 - updated 2 years ago
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Author(s): 
D’Artis Kancs and Boriss Siliverstovs
Year of publication: 
2015

The paper estimates and decomposes the employment effect of innovation by R&D intensity levels. Our microeconometricanalysis is based on a large international panel data set from the EU Industrial R&D Investment Scoreboard.Employing flexible semi-parametric methods - the generalised propensity score - allows us to recover the full functionalrelationship between R&D investment and firm employment, and to address important econometric issues, which is notpossible in the standard estimation approach used in the previous literature. Our results suggest that modest innovatorsdo not create and may even destruct jobs by raising their R&D expenditures. Most of the jobs in the economy are createdby innovation followers: increasing innovation by 1% may increase employment up to 0.7%. The job creation effect ofinnovation reaches its peak when R&D intensity is around 100% of the total capital expenditure, after which the positiveemployment effect declines and becomes statistically insignificant. Innovation leaders do not create jobs by furtherincreasing their R&D expenditures, which are already very high.