Employment and Innovation in Recessions: Firm-Level Evidence from European Countries

This paper investigates the employment effects of innovation over the business cycle with a large data set of manufacturing firms from 26 European countries from 1998 to 2014. The paper reveals four important findings: First, the net employment effect of product innovation is pro-cyclical and positive except in recessions. Second, product innovators are more resilient in recessions than non-product innovators because they are able to substitute demand losses in old products with new products. As a result, the net employment losses of product innovators are significantly lower in recessions than those of non-product innovators. Third, we find resilience only among small and medium-sized enterprises (SMEs), but not among large firms. Fourth, process and organizational innovations displace labor primarily during upturn and downturn periods.

Peters, Bettina, Bernhard Dachs, Martin Hud and Christian Köhler (2022), Employment and Innovation in Recessions: Firm-Level Evidence from European Countries, Industrial and Corporate Change 31(6) , 1460-1493