Innovation and jobs: evidence from manufacturing firms

Abstract

This paper is aimed at structurally assessing the employment effects of the innovative\nactivities of firms. We estimate firm level displacement and compensation effects in a model in which the stock of knowledge capital raises firm relative efficiency through process innovations and firm demand through product innovations. Displacement is estimated from the elasticity of employment with respect to innovation in the (conditional or Hicksian) demand for labour.\nCompensation effects are estimated from a firm-specific demand relationship. We also assess\nthe enlargement and weakening of these effects due to firm agents’ behaviour aimed at\nappropriating innovation rents. We find that the potential employment compensation effect of process innovations surpasses the displacement effect, both in the short and long run (when competitors react), and that product innovation doubles the expanding impact by unit of expenditure, but also that agents’ behaviour can seriously reduce these effects. The actual elasticity of employment to knowledge capital is estimated, however, not far from unity, while “passive” productivity growth is suggested to have null or negative employment effects.