Impressive Employment Balance for Innovators even in Downturn Periods

Service and product innovations are considered to be the most important engines for economic and employment growth. Against this backdrop, we often forget that innovations can also be a source of jobs destruction. The overall employment balance of innovative firms, however, is clearly positive.

Employment creation is considerably larger in innovative firms than in non-innovative firms, both in upturn and in downturn periods. Even during recessions employment losses are much smaller in innovator firms than in other firms. These are the findings of a study conducted by the Centre for European Economic Research (ZEW) and the AIT Austrian Institute of Technology on behalf of the European Commission. Researchers analysed firm data from 26 EU Member States in the period between 1998 and 2010 for the study.

On the one hand, demand for new products and services creates new jobs. On the other hand, new technology improves the capacity of firms to produce as many or even more goods with fewer employees. What's more, product innovations cause a decrease in sales of established products, leading to employment losses.

Innovative firms create more new jobs because they are able to compensate the loss of jobs connected to established products with job creation through new products. The data examined for the study shows that this compensation effect is particularly important during recession periods: Employment losses for innovators are smaller than for non-innovators in recession periods, because the launch of new products partly compensates declines in sales. By contrast, non-innovative firms have to cut employment more drastically to survive. The effects of start-ups and firm closings have not been taken into consideration here.

In most cases, the race between job creation and job destruction as a result of innovation has generated more employment growth than job losses. However, no guarantee can be given whether this will hold true in future cases. Innovations such as process automation and electronic data exchange between single process steps (Industry 4.0) may possibly lead to greater job losses than job gains in the future.

Download the study at

http://ftp.zew.de/pub/zew-docs/gutachten/CR2014_BackgroundStudy.pdf

For more information please contact

Dr. Bettina Peters, Phone +49(0)621 1235-174, peters@zew.de

Information on the study

The study "Firm Growth, Innovation and the Business Cycle" was conducted on behalf of the European Commission for the 2014 Competitiveness Report of the European Union, Framework Contract ENTR/2009/033. The analysis of the study was based on data from the Community Innovation Survey (CIS), a survey on innovation activities of firms in the European Union. Data from more than 400,000 firms from 26 countries in the period between 1998 and 2010 was used. The authors of the study are Bettina Peters, Bernhard Dachs, Martina Dünser, Martin Hud, Christian Köhler, and Christian Rammer. More information about the project at: http://www.zew.de/de/projekte/1383