Does Public Procurement of Innovation Create Jobs?

Since a European reform in public procurement legislation in 2014, calls for tenders may contain elements of service and product innovation that may still have to be developed when a contract is awarded. Because of this possibility of procuring innovation, policy makers see the new Public Procurement of Innovation (PPI) as a key element in fostering an innovation-driven economy. The paper presented in this PRICE Seminar contributes to the understanding of PPI as a novel innovation policy tool in three ways: First, the authors ask if PPI has the potential to promote employment in Research & Development (R&D) jobs. Second, they shed light on a potential secondary effect of PPI on the economy, namely by promoting employment in non-R&D jobs. Third, they put this finding into a broader context of different innovation policies and compare the effect of PPI to R&D grants and R&D tax credits. Empirically analyzing a panel of R&D active Belgian firms the authors find that PPI has a unique feature as it promotes jobs in both, R&D and non-R&D employment, whereas R&D grants and R&D tax credits primarily increase employment in R&D jobs. They attribute these findings to the unique structure of PPI,  which, unlike R&D grants and R&D tax credits, offers a guaranteed market demand for the innovative product or service to the firms, allowing them to expand their production capacities and correspondingly hire additional non-R&D employees to bring the innovation to the market.