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Labor shortage and innovation

Jens Horbach and Christian Rammer

No 20-009, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Skilled labor is a key input to the innovation process. A shortage in supply of skilled labor may hence impede innovation activities, resulting in lower productivity gains. While governments are concerned about these likely negative impacts, there is only limited empirical evidence whether and to what extent labor shortage affects innovation activities. The paper addresses this question using panel data from three waves (2017 to 2019) of the German innovation survey. We measure labor shortage by job openings that could not be filled at all, not with the required skills or only with significant delay, distinguishing different skill levels. We analyze whether labor shortage resulted in stopping or abandoning of innovation projects. Endogeneity issues are tackled by instrumental variable estimation techniques. Our results show that innovative firms are more likely to be subject to skill shortage, whereas skill shortage induces the cancelation of innovation projects. Effects are stronger for labor shortage related to professional occupations and less for academic qualifications.

Keywords: community Innovation Survey; labor shortage; innovation; probit instrumental variable estimation (search for similar items in EconPapers)
JEL-codes: J23 J24 O31 C26 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ino and nep-tid
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