The Effect of External Innovation on Firm Employment

Guillermo Arenas Díaz (), Andrés Barge-Gil, Joost Heijs () and Alberto Marzucchi
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Joost Heijs: Department of Applied Economics, Structure and History, Complutense University of Madrid, Madrid, Spain

No dipe0026, DISCE - Working Papers del Dipartimento di Politica Economica from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: This paper analyses the effects of product innovations introduced by firms in upstream and downstream sectors and firms in the same sector on firm employment. To this aim, we extend the Harrison et al. (2014) model to analyse the relationship between firm innovation and employment to account for innovation in the same and related sectors. We employ panel data for the innovation activities of Spanish firms together with input–output data. The results show that product innovation by firms in the same sector harms the firm's employment, which is consistent with a business-stealing mechanism. A negative effect on employment is found for the introduction of new products in upstream sectors, which results in the reduction of labour in the focal firm. The type of labour that is displaced by innovations introduced by both same-sector and upstream firms is predominantly low-skilled. No significant effects are found for innovations introduced in downstream industries.

Keywords: same sector; downstream and upstream sectors; product innovation; employment growth (search for similar items in EconPapers)
JEL-codes: J23 L6 O31 O33 (search for similar items in EconPapers)
Pages: 34
Date: 2022-02
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-cwa, nep-ent, nep-eur, nep-ino, nep-lma, nep-sbm and nep-tid
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Journal Article: The effect of external innovation on firm employment (2025)
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