The interaction between technical progress and employment has been analyzed in the theoretical and empirical economic literature at the micro, meso, and macro level. This paper deals only with the micro or firm level. Theoretical models of the influence of innovations on employment have yielded ambiguous results, but there is a basic consensus that product innovations are more likely to have a positive impact on employment than process innovations. Empirical studies have not yet clarified the issues. The present study is based on data derived from the WIFO Technology and Innovations Survey 1990 (TIT), and attempts to estimate the short-term employment effects of innovations. The results indicate that the relationship between technical progress (innovations) and employment is ambiguous, even though the basic theoretical consensus can be confirmed. An important, statistically significant, finding is that successful product innovations (with success measured in terms of turnover shares) induces an expansion in employment. Not surprisingly, the study clearly shows that a high cash flow raises the probability of an increase in employment. Growing markets raise the probability of an expansion in employment, but shrinking markets need not directly lead to employment losses. A high export share shows no clear relation to employment gains; this indicates that increased activity in foreign markets entails cyclical, marketing, and currency risks, which may have varying effects on employment. Skill intensity, capital intensity, and the level of wages do not appear to have a significant influence on employment; as far as capital intensity and the level of wages is concerned, this may be related to the fact that the data cover branches and not individual firms. To summarize, (successful) product innovations, expanding markets, and a strong financial basis exert a positive influence on employment. This study provides some support for an active technology policy. The great risks inherent in product and process innovations may lead to underinvestment in research and development, if part of the risk is not covered by government programs. This does not mean, however, that the risk problem must be solved in the form of subsidized loans or grants, as has been the current practice in Austria. Providing insurance for potential failures is sufficient. Moreover, the results of the study suggest that government support should be mainly provided to enhance product innovation. The positive relation between cash flow and innovative activity indicates that a firm's high equity basis is an essential precondition for innovative activities; it may also be the result of successful innovations in the past. Thus, measures to strengthen equity capital of enterprises might stimulate innovative activities.
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Volume (Year): 68 (1995) Issue (Month): 6 (June) Pages: 428-434 Download reference. The following formats are available: HTML
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