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The employment effects of innovation

Alex Coad (alex.coad@gmail.com) and Rekha Rao-Nicholson

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm-and year-specific "innovativeness" index by extracting the common variance in a firm's patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we focus on the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicity weighting each firm equally according to the principle of "one firm equals one observation". Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies.

Keywords: Technological unemployment; innovation; firm growth; Weighted Least Squares; aggregation; quantile regression (search for similar items in EconPapers)
JEL-codes: J01 L25 O33 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-07
New Economics Papers: this item is included in nep-bec, nep-ino and nep-mic
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Working Paper: The employment effects of innovation (2007) Downloads
Working Paper: The employment effects of innovation (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:r07036

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