Journal of Evolutionary Economics

, Volume 21, Issue 2, pp 255–283 | Cite as

The firm-level employment effects of innovations in high-tech US manufacturing industries

  • Alex CoadEmail author
  • Rekha Rao
Regular Article


We focus on four two-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. We then move on to parametric regressions that include 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 investigate 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.


Technological unemployment Innovation Firm growth Weighted least squares Quantile regression 

JEL Classification

L25 O33 J01 



An earlier draft of this paper won the ‘Young Scholar Best Paper Award’ at the DRUID summer conference 2007. We thank Hans Gersbach, Karin Hoisl, Camilla Lenzi, Pierre Mohnen, Christian Seiser, and Ulrich Witt, as well as participants at the DRUID summer conference 2007 and the Monte Verità conference on “The Economics of Technology Policy” (July 2007), and two anonymous referees for helpful comments and discussions. The usual caveat applies.


  1. Antonucci T, Pianta M (2002) Employment effects of product and process innovation in Europe. Int Rev Appl Econ 16(3):295–307CrossRefGoogle Scholar
  2. Appelbaum E, Schettkat R (1995) Employment and productivity in industrialized economies. Int Labour Rev 134(4–5):605–623Google Scholar
  3. Archibugi D (1992) Patenting as indicator of technological innovation: a review. Sci Public Policy 19(6):357–368Google Scholar
  4. Arundel A, Kabla I (1998) What percentage of innovations are patented? Empirical estimates for european firms. Res Policy 27:127–141CrossRefGoogle Scholar
  5. Azevedo JPW (2004) grqreg: stata module to graph the coefficients of a quantile regression. Technical report, Boston College Department of EconomicsGoogle Scholar
  6. Bloom N, Van Reenen J (2002) Patents, real options and firm performance. Econ J 112:C97–C116CrossRefGoogle Scholar
  7. Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econom 87:115–143CrossRefGoogle Scholar
  8. Bond S (2002) Dynamic panel data models: a guide to micro data methods and practice. Port Econ J 1:141–162CrossRefGoogle Scholar
  9. Bottazzi G, Secchi A (2003) Common properties and sectoral specificities in the dynamics of US manufacturing companies. Review of Industrial Organization 23:217–232CrossRefGoogle Scholar
  10. Bound J, Cummins C, Griliches Z, Hall BH, Jaffe A (1984) Who does R&D and who patents? In: Griliches Z (ed) R&D, patents, and productivity. Chicago University Press, Chicago, pp 21–54Google Scholar
  11. Brouwer E, Kleinknecht A, Reijnen JON (1993) Employment growth and innovation at the firm level: an empirical study. J Evol Econ 3:153–159CrossRefGoogle Scholar
  12. Bruno G (2005) XTLSDVC: stata module to estimate bias corrected LSDV dynamic panel data models. Statistical Software Components S450101, Boston College Department of EconomicsGoogle Scholar
  13. Buchinsky M (1994) Changes in the US wage structure 1963–1987: application of quantile regression. Econometrica 62:405–458CrossRefGoogle Scholar
  14. Buchinsky M (1998) Recent advances in quantile regression models: a practical guide for empirical research. J Hum Resour 33(1):88–126CrossRefGoogle Scholar
  15. Cantner U, Krueger JJ (2007) Empirical tools for the analysis of technological heterogeneity and change. In: Hanusch H, Pyka A (eds) Companion to Neo-Schumpeterian economics. Edward Elgar, CheltenhamGoogle Scholar
  16. Cefis E, Orsenigo L (2001) The persistence of innovative activities: a cross-countries and cross-sectors comparative analysis. Res Policy 30:1139–1158CrossRefGoogle Scholar
  17. Coad A (2009) The growth of firms: a survey of theories and empirical evidence. Edward Elgar, CheltenhamGoogle Scholar
  18. Coad A, Rao R (2006) Innovation and market value: a quantile regression analysis. Econ Bull 15(13):1–10Google Scholar
  19. Coad A, Rao R (2007) The employment effects of innovations in high-tech industries. Papers on Economics and Evolution 2007-05, Max Planck Institute of Economics, Evolutionary Economics GroupGoogle Scholar
  20. Coad A, Rao R (2008) Innovation and firm growth in high-tech sectors: a quantile regression approach. Res Policy 37(4):633–648CrossRefGoogle Scholar
  21. Cohen WM, Nelson RR, Walsh JP (2000) Protecting their intellectual assets: appropriability conditions and why US manufacturing firms patent (or not). NBER working paper 7552Google Scholar
  22. Davis DR (1998) Technology, unemployment and relative wages in a global economy. Eur Econ Rev 42:1613–1633CrossRefGoogle Scholar
  23. Dertouzos M, Lester R, Solow R (1989) Made in America: Regaining the productive edge. MIT Press, CambridgeGoogle Scholar
  24. Djellal F, Gallouj F (2007) Innovation and employment effects in services: a review of the literature and an agenda for research. Serv Ind J 27(3):193–214CrossRefGoogle Scholar
  25. Dobbs IM, Hill MB, Waterson M (1987) Industrial structure and the employment consequences of technical change. Oxf Econ Pap 39:552–567Google Scholar
  26. Doms M, Dunne T, Roberts MJ (1995) The role of technology use in the survival and growth of manufacturing plants. Int J Ind Organ 13:523–542CrossRefGoogle Scholar
  27. Dosi G (1988) Sources, procedures, and microeconomic effects of innovation. J Econ Lit 26(3):1120–1171Google Scholar
  28. Evangelista R, Savona M (2002) The impact of innovation on employment in services: evidence from Italy. Int Rev Appl Econ 16(3):309–318CrossRefGoogle Scholar
  29. Evangelista R, Savona M (2003) Innovation, employment and skills in services. firm and sectoral evidence. Struct Chang Econ Dyn 14:449–474CrossRefGoogle Scholar
  30. Fleck J (1984) The adoption of robots in industry. Phys Technol 15:4–11CrossRefGoogle Scholar
  31. Freel MS (2000) Do small innovating firms outperform non-innovators? Small Bus Econ 14:195–210CrossRefGoogle Scholar
  32. Freeman C, Soete L (1994) Work for all or mass unemployment? In: Computerised technical change in the 21st century. Pinter, LondonGoogle Scholar
  33. Fung M (2006) Are labor-saving technologies lowering employment in the banking industry? J Bank Financ 30(1):179–198CrossRefGoogle Scholar
  34. Geroski PA, Gugler K (2004) Corporate growth convergence in Europe. Oxf Econ Pap 56:597–620CrossRefGoogle Scholar
  35. Greenan N, Guellec D (2000) Technological innovation and employment reallocation. Labour 14:547–590CrossRefGoogle Scholar
  36. Greenhalgh C, Longland M, Bosworth D (2001) Technological activity and employment in a panel of UK firms. Scott J Polit Econ 48(3):260–282CrossRefGoogle Scholar
  37. Griliches Z (1990) Patent statistics as economic indicators: a survey. J Econ Lit 28:1661–1707Google Scholar
  38. Hair J, Anderson R, Tatham R, Black W (1998) Multivariate data analysis: fifth edition. Prentice Hall, Upper Saddle River, NJGoogle Scholar
  39. Hall BH (1987) The relationship between firm size and firm growth in the US manufacturing sector. J Ind Econ 35(4):583–600CrossRefGoogle Scholar
  40. Hall BH (2004) Exploring the patent explosion. J Technol Transf 30(1–2):35–48CrossRefGoogle Scholar
  41. Hall BH, Oriani R (2006) Does the market value R&D investment by European firms? Evidence from a panel of manufacturing firms in France, Germany, and Italy. Int J Ind Organ 24(5):971–993CrossRefGoogle Scholar
  42. Hall BH, Jaffe A, Trajtenberg M (2001a) Market value and patent citations: a first look. Paper E01-304, University of California, BerkeleyGoogle Scholar
  43. Hall BH, Jaffe A, Trajtenberg M (2001b) The NBER patent citation data file: lessons, insights and methodological tools. NBER working paper 8498Google Scholar
  44. Hall BH, Lotti F, Mairesse J (2008) Employment, innovation and productivity: evidence from Italian microdata. Ind Corp Change 17(4):813–839CrossRefGoogle Scholar
  45. Harrison R, Jaumandreu J, Mairesse J, Peters B (2005) Does innovation stimulate employment? A firm-level analysis using comparable micro data on four European countries. Mimeo, Universidad Carlos III, MadridGoogle Scholar
  46. Katsoulacos Y (1984) Product innovation and employment. Eur Econ Rev 26(1–2):83–108CrossRefGoogle Scholar
  47. Klepper S (1996) Entry, exit, growth, and innovation over the product life cycle. Am Econ Rev 86(3):562–583Google Scholar
  48. Koenker R, Bassett G (1978) Regression quantiles. Econometrica 46(1):33–50CrossRefGoogle Scholar
  49. Koenker R, Hallock KF (2001) Quantile regression. J Econ Perspect 15(4):143–156CrossRefGoogle Scholar
  50. Lachenmaier S, Rottmann H (2007) Employment effects of innovation at the firm level. Jahrb Natl Okon Stat 227(3):254–272Google Scholar
  51. Lanjouw J, Schankerman M (2004) Patent quality and research productivity: measuring innovation with multiple indicators. Econ J 114:441–465CrossRefGoogle Scholar
  52. Mastrostefano V, Pianta M (2009) Technology and jobs. Econ Innov New Technol 18(8):729–741CrossRefGoogle Scholar
  53. Meyer-Krahmer F (1992) The effects of new technologies on employment. Econ Innov New Technol 2:131–149CrossRefGoogle Scholar
  54. Mosteller F, Tukey J (1977) Data analysis and regression. Addison-Wesley, ReadingGoogle Scholar
  55. Nickell S (1981) Biases in dynamic models with fixed effects. Econometrica 49(6):1417–1426CrossRefGoogle Scholar
  56. Niefert M (2005) Patenting behavior and employment growth in German start-up firms: a panel data analysis. Discussion paper 05-03, ZEW Centre for European Economic Research, MannheimGoogle Scholar
  57. OECD (1994) Using patent data as science and technology indicators. Patent manual 1994, OECD, ParisGoogle Scholar
  58. Oppenheim C (1995) Will patentees suffer if the USA moves to a different lifetime for its patents? World Pat Inf 17(2):97–99CrossRefGoogle Scholar
  59. Peters B (2004) Employment effects of different innovation activities: microeconometric evidence. ZEW discussion paper no 04-73Google Scholar
  60. Pianta M (2004) Innovation and employment. In: Fagerberg J, Mowery D, Nelson R (eds) The Oxford handbook of innovation. Oxford University Press, Oxford, pp 568–598Google Scholar
  61. Reichstein T, Dahl MS, Ebersberger B, Jensen MB (2010) The devil dwells in the tails—a quantile regression approach to firm growth. J Evol Econ 20(2):219–231CrossRefGoogle Scholar
  62. Scherer FM (1965) Size of firm, oligopoly and research: a comment. Can J Econ Polit Sci 31(2):256–266CrossRefGoogle Scholar
  63. Small I, Swann P (1993) R&D performance of UK companies. Bus Strateg Rev 4(3):41–51CrossRefGoogle Scholar
  64. Smolny W (1998) Innovation, prices and employment—a theoretical model and an empirical application for West German manufacturing firms. J Ind Econ 46(3):359–381Google Scholar
  65. Spiezia V, Vivarelli M (2000) The analysis of technological change and employment. In: Vivarelli M, Pianta M (eds) The employment impact of innovation: evidence and policy. Routledge, London, pp 12–25Google Scholar
  66. Stanley MHR, Amaral LAN, Buldyrev SV, Havlin S, Leschhorn H, Maass P, Salinger MA, Stanley HE (1996) Scaling behavior in the growth of companies. Nature 379:804–806CrossRefGoogle Scholar
  67. Timmer M, Van Ark B (2005) Does information and communication technology drive EU-US productivity growth differentials? Oxf Econ Pap 57(4):693–716CrossRefGoogle Scholar
  68. Van Reenen J (1997) Employment and technological innovation: evidence from UK manufacturing firms. J Labor Econ 15(2):255–284CrossRefGoogle Scholar
  69. Vivarelli M (1995) The economics of technology and employment: theory and empirical evidence. Edward Elgar, CheltenhamGoogle Scholar
  70. Vivarelli M, Evangelista R, Pianta M (1996) Innovation and employment: evidence from Italian manufacturing. Res Policy 25:1013–1026CrossRefGoogle Scholar
  71. Willett JB, Singer JD (1988) Another cautionary note about R2: Its use in weighted least squares regression analysis. Am Stat 42(3):236–238CrossRefGoogle Scholar
  72. Yin X, Zuscovitch E (1998) Is firm size conducive to R&D choice? A strategic analysis of product and process innovations. J Econ Behav Organ 35(2):243–262CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.SPRUUniversity of SussexBrightonUK
  2. 2.Evolutionary Economics GroupMax Planck Institute of EconomicsJenaGermany
  3. 3.Centre d’Economie de la Sorbonne, Equipe MATISSEUniv. Paris 1—CNRSParisFrance
  4. 4.LEMSant’Anna School of Advanced StudiesPisaItaly
  5. 5.School of ManagementUniversity of BathBathUK

Personalised recommendations