Population–employment dynamics in the European Union: Does innovation lead or follow?

This article examines the interaction between innovation and employment and population dynamics through the development of a system of simultaneous equations. The model is ap- plied to a panel dataset of 271 European NUTS-2 regions. The results reveal strong bidi- rectional feedbacks between innovation and employment, while population dynamics operate indirectly through employment rather than exerting a direct effect on innovation. Innovation is found to follow jobs rather than people, indicating that the concentration of economic ac- tivity and labor interactions, not demographic size per se, constitute the primary drivers of regional innovative capacity. These mutually reinforcing dynamics give rise to virtuous and vicious cycles that contribute to persistent regional disparities. By opening the black box of employment–population–innovation interactions, the paper provides a structural foundation for designing more effective population, innovation, and employment policies. In particular, the analysis demonstrates that policies targeting a single dimension, whether business climate, quality of life, or innovation support, are unlikely to succeed in isolation.