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The Employment Effects of Innovations in High-Tech Industries

  • Alexander Coad
  • Rekha Rao

The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm- and year-specific 'innovativeness' index by extracting the common variance in a firm’s patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we focus on the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicitly weighting each firm equally according to the principle of 'one firm equals one observation'. Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies.

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Paper provided by Philipps University Marburg, Department of Geography in its series Papers on Economics and Evolution with number 2007-05.

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Date of creation: Aug 2007
Date of revision:
Handle: RePEc:esi:evopap:2007-05
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  1. Hall, Bronwyn H. & Jaffee, Adam & Trajtenberg, Manuel, 2000. "Market Value and Patent Citations: A First Look," Department of Economics, Working Paper Series qt1rh8k6z2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521608275, October.
  3. Bronwyn Hall, 2004. "Exploring the patent explosion," ESRC Centre for Business Research - Working Papers wp291, ESRC Centre for Business Research.
  4. Alex Coad & Rekha Rao, 2007. "Innovation and Firm Growth in High-Tech Sectors: A Quantile Regression Approach," Open Discussion Papers in Economics 57, The Open University, Faculty of Social Sciences, Department of Economics.
  5. Hall, Bronwyn H & Jaffe, Adam B & Trajtenberg, Manuel, 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," CEPR Discussion Papers 3094, C.E.P.R. Discussion Papers.
  6. Alex Coad, 2007. "Firm Growth : a Survey," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00155762, HAL.
  7. Evangelista, Rinaldo & Savona, Maria, 2003. "Innovation, employment and skills in services. Firm and sectoral evidence," Structural Change and Economic Dynamics, Elsevier, vol. 14(4), pages 449-474, December.
  8. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343 National Bureau of Economic Research, Inc.
  9. Brouwer, Erik & Kleinknecht, Alfred & Reijnen, Jeroen O N, 1993. "Employment Growth and Innovation at the Firm Level," Journal of Evolutionary Economics, Springer, vol. 3(2), pages 153-59, May.
  10. Arundel, Anthony & Kabla, Isabelle, 1998. "What percentage of innovations are patented? empirical estimates for European firms," Research Policy, Elsevier, vol. 27(2), pages 127-141, June.
  11. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  12. Alex Coad & Rekha Rao, 2006. "Innovation and firm growth in "complex technology" sectors : a quantile regression approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118797, HAL.
  13. Harrison, Rupert & Jaumandreu, Jordi & Mairesse, Jacques & Peters, Bettina, 2005. "Does innovation stimulate employment? A firm-level analysis using comparable micro data on four European countries," MPRA Paper 1245, University Library of Munich, Germany.
  14. Jean O. Lanjouw & Mark Schankerman, 2004. "Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators," Economic Journal, Royal Economic Society, vol. 114(495), pages 441-465, 04.
  15. Greenhalgh, C & Longland, M & Bosworth, D, 2001. "Technological Activity and Employment in a Panel of UK Firms," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(3), pages 260-82, August.
  16. Elena Cefis & Luigi Orsenigo, 1998. "The Persistence of Innovative Activities. A Cross-Countries and Cross-Sectors Comparative Analysis," Department of Economics Working Papers 9804, Department of Economics, University of Trento, Italia.
  17. Nicholas Bloom & John Van Reenen, 2002. "Patents, Real Options and Firm Performance," Economic Journal, Royal Economic Society, vol. 112(478), pages C97-C116, March.
  18. Wesley M. Cohen & Richard R. Nelson & John P. Walsh, 2000. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)," NBER Working Papers 7552, National Bureau of Economic Research, Inc.
  19. Giulio Bottazzi & Angelo Secchi, 2003. "Common Properties and Sectoral Specificities in the Dynamics of U.S. Manufacturing Companies," Review of Industrial Organization, Springer, vol. 23(3_4), pages 217-232, December.
  20. repec:ebl:ecbull:v:15:y:2006:i:13:p:1-10 is not listed on IDEAS
  21. Joao Pedro Azevedo, 2004. "GRQREG: Stata module to graph the coefficients of a quantile regression," Statistical Software Components S437001, Boston College Department of Economics, revised 17 Mar 2011.
  22. repec:fth:harver:1473 is not listed on IDEAS
  23. Van Reenen, John, 1997. "Employment and Technological Innovation: Evidence from U.K. Manufacturing Firms," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 255-84, April.
  24. Niefert, Michaela, 2005. "Patenting Behaviour and Employment Growth in German Start-up Firms: A Panel Data Analysis," ZEW Discussion Papers 05-03, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  25. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
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