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The Impact of Innovation on Employment in Small and Medium Enterprises with Different Growth Rates

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  • Zimmermann Volker

    () (KfW Bankengruppe, Palmengartenstr. 5–9, 60325 Frankfurt a.M., Germany)

Abstract

This article examines the impact of innovation on employment growth in innovating small and medium enterprises. In contrast to existing studies, which typically use the least squares estimation technique, quantile regressions were carried out to analyse the data. This method allows one to examine the effects of innovation at any desired point on the distribution function - for example, in firms experiencing positive or negative growth - providing a more complete picture of the relationship between innovation and employment growth than the standard method of viewing deviations in the average effect. The key finding of the study is that innovation has a positive effect on employment in both growing and shrinking small and medium enterprises. In addition, innovation has a much stronger impact on employee headcounts in companies that are already experiencing strong growth than in their slower growing or shrinking counterparts. When differentiating between product and process innovations, the analysis shows that the introduction of new or improved processes has a larger impact on employment than product innovations. Thus, positive employment effects of innovations are not restricted to narrow segments of the economy. Economic policy aimed at bolstering the innovative strength of firms is thus a strong encouragement to employment on a broad basis.

Suggested Citation

  • Zimmermann Volker, 2009. "The Impact of Innovation on Employment in Small and Medium Enterprises with Different Growth Rates," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(2-3), pages 313-326, April.
  • Handle: RePEc:jns:jbstat:v:229:y:2009:i:2-3:p:313-326
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    References listed on IDEAS

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    1. Rottmann, Horst & Lachenmaier, Stefan, 2007. "Employment effects of innovation at the firm level," Weidener Diskussionspapiere 3, University of Applied Sciences Amberg-Weiden (OTH).
    2. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    3. Welsch, Johann, 2006. "Paradigmenwechsel beim Zusammenhang von Innovation und Beschäftigung?," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1949 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, pages 811-820.
    4. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    5. repec:jns:jbstat:v:227:y:2007:i:3:p:254-272 is not listed on IDEAS
    6. Gaskins, Darius Jr., 1971. "Dynamic limit pricing: Optimal pricing under threat of entry," Journal of Economic Theory, Elsevier, vol. 3(3), pages 306-322, September.
    7. Lachenmaier Stefan & Rottmann Horst, 2007. "Employment Effects of Innovation at the Firm Level," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, pages 254-272.
    8. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
    9. Stefan Lachenmaier & Horst Rottmann, 2006. "Employment Effects of Innovation at the Firm Level," ifo Working Paper Series 27, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-653, September.
    11. Stefan Lachenmaier, 2007. "Effects of innovation on firm performance," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 28, April.
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    Cited by:

    1. Horbach, Jens & Janser, Markus, 2016. "The role of innovation and agglomeration for employment growth in the environmental sector," Annual Conference 2016 (Augsburg): Demographic Change 145500, Verein für Socialpolitik / German Economic Association.
    2. Horbach, Jens & Rennings, Klaus, 2012. "Environmental innovation and employment dynamics in different technology fields: An analysis based on the German community innovation survey 2009," ZEW Discussion Papers 12-006, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. repec:eee:iepoli:v:39:y:2017:i:c:p:36-44 is not listed on IDEAS

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