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Employment effects of innovations over the business cycle: Firm-level evidence from European countries

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  • Dachs, Bernhard
  • Hud, Martin
  • Koehler, Christian
  • Peters, Bettina

Abstract

A growing literature investigates how firms' innovation input reacts to changes in the business cycle. However, so far there is no evidence whether there is cyclicality in the effects of innovation on firm performance as well. In this paper, we investigate the employment effects of innovations over the business cycle. Our analysis employs a large data set of manufacturing firms from 26 European countries over the period from 1998 to 2010. Using the structural model of Harrison et al. (2014), our empirical analysis reveals four important findings: First, the net effect of product innovation on employment growth is pro-cyclical. It turns out to be positive in all business cycle phases except for the recession. Second, product innovators are more resilient to recessions than non-product innovators. Even during recessions they are able to substitute demand losses from old products by demand gains of new products to a substantial degree. As a result their net employment losses are significantly lower in recessions than those of non-product innovators. Third, we only find resilience for SMEs but not for large firms. Fourth, process and organizational innovations displace labor primarily during upturn and downturn periods.

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  • Dachs, Bernhard & Hud, Martin & Koehler, Christian & Peters, Bettina, 2016. "Employment effects of innovations over the business cycle: Firm-level evidence from European countries," ZEW Discussion Papers 16-076, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:16076
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    Citations

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    Cited by:

    1. Mariacristina Piva & Marco Vivarelli, 2018. "Innovation, jobs, skills and tasks: a multifaceted relationship," DISCE - Quaderni del Dipartimento di Politica Economica dipe0001, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Heijs, Joost & Arenas Díaz, Guillermo & Vergara Reyes, Delia Margarita, 2019. "Impact of innovation on employment in quantitative terms: review of empirical literature based on microdata," MPRA Paper 95326, University Library of Munich, Germany.
    3. repec:oup:indcch:v:28:y:2019:i:1:p:203-218. is not listed on IDEAS
    4. Bernhard Dachs & Martin Hud & Christian Koehler & Bettina Peters, 2017. "Innovation, creative destruction and structural change: firm-level evidence from European countries," Industry and Innovation, Taylor & Francis Journals, vol. 24(4), pages 346-381, May.
    5. Tommaso Ciarli & Alberto Marzucchi & Edgar Salgado & Maria Savona, 2018. "The Effect of R&D Growth on Employment and Self-Employment in Local Labour Markets," SPRU Working Paper Series 2018-08, SPRU - Science Policy Research Unit, University of Sussex Business School.
    6. repec:zbw:zewexp:181906 is not listed on IDEAS
    7. Martin Falk & Eva Hagsten, 2018. "Employment impacts of market novelty sales: evidence for nine European Countries," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 119-137, June.
    8. Laura Barbieri & Mariacristina Piva & Marco Vivarelli, 2016. "The Employment Impact of Different Forms of Innovation: Evidence from Italian Community Innovation Survey," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1620, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    9. Laura Barbieri & Mariacristina Piva & Marco Vivarelli, 2019. "R&D, embodied technological change, and employment: evidence from Italian microdata," Industrial and Corporate Change, Oxford University Press, vol. 28(1), pages 203-218.
    10. repec:wfo:wstudy:60838 is not listed on IDEAS

    More about this item

    Keywords

    innovation; employment; business cycle; resilience; Europe;

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D2 - Microeconomics - - Production and Organizations

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