The paper analyses the theoretical and empirical relationship between employment, skill structure and innovation in East and West German manufacturing firms. The econometric part builds on firm data from the Mannheim Innovation Panel 1993, 1994 and 1995. In the German industrial sector, especially in East Germany, employment has declined and the share of highly skilled labour has risen. The econometric investigation of labour demand, based on the translog production function, reveals differences in the firms? behaviour in East and West German manufacturing and between innovative and non-innovative firms. It is shown that complex patterns of substitution between capital and different types of labour emerge, which depend on the stage of economic transformation, the type of firms, wage setting behaviour and public policy. The results suggest that in the current stage of transition subsidising labour might be more effective for creating jobs in East Germany than promoting R&D and capital equipment. Subsidies can be lower the higher the workers? qualification level is. --
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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number
97-08.
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Find related papers by JEL classification: O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
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