A closer look at the relationship between innovation and employment growth at the firm level

Abstract

This paper considers in detail how different types of innovation (products, processes, patents, combinations) are related to different employment growth characteristics (exit or survival, with employment upscaling or downscaling at moderate or high rates). Using Norwegian Community Innovation Survey (CIS) data collected in 2008 and merged with public employer-employee registers for the years 2004–2010, it finds that growth persists over time, and increases the probability that ‘bundles’ of complementary product and process innovations are introduced that strengthen employment further. Downscaling also persists, and reduces the probability that ‘bundles’ are introduced that could turn the negative trend. While standalone product innovations follow in the wake of rapid expansion, such have limited impact on employment beyond sustaining growth at moderate levels. Standalone process innovations, by contrast, tend to be introduced after a period of moderate growth, yet, might give rise to large subsequent expansions. These results demonstrate that innovation and employment growth are multi-dimensional characteristics of the firm, which are interlinked with each other in virtuous or vicious circles that unfolds over time.

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Notes

  1. 1.

    Innovation status refers to whether firms engaged or not in innovative activities during the reference period, with or without specific outcomes (OECD 2005:58–59; OECD 2018:80–81). Because responding is compulsory and a strict routing structure is no longer implemented, Norwegian firms that are not innovation active systematically answer ‘0’ on questions that assume such activity (e.g. questions on factors that hamper innovation and collaboration for innovation). This gives rise to tight correlations between innovation activity/outcome, and positive responses to question that in wording assume innovation activity or outcome. Therefore, variables based on such information must be used with caution unless sample selection models in the tradition of Heckman (1979) are used where only innovation-active firms are included in the estimations of interest (see e.g. Bogliacino et al. 2017; Cassiman and Veugelers 2006; Herstad and Ebersberger 2015); Herstad et al. (2015).

  2. 2.

    The alternative of controlling for labour productivity growth in 2004–2006 and 2006–2010 is not open, as it cannot be observed for firms established in the first period or closed down in the second.

  3. 3.

    Aquaculture, Offshore Oil & Gas extraction, mining & quarrying, high-tech manufacturing, medium high-tech manufacturing, medium low-tech manufacturing, low-tech manufacturing, construction, energy & environmental services, wholesale trade, transportation & logistics services, information & communication services, financial & management services, technical & scientific services, other business services (cf. Herstad 2018a)

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Acknowledgements

The authors are grateful for the encouragement and valuable comments received from two anonymous reviewers and the Editor. Yet, the usual disclaimers apply.

Funding

The Research Council of Norway under the project ‘Economic Development Paths in Norwegian Regions’ (Contract Number 209769/H20).

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Appendix

Appendix

Table 6 Descriptive statistics and bivariate correlations. N = 4604
Table 7 Robustness test. Only manufacturing & knowledge intensive services. N = 3645

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Herstad, S.J., Sandven, T. A closer look at the relationship between innovation and employment growth at the firm level. J Evol Econ 30, 375–399 (2020). https://doi.org/10.1007/s00191-019-00636-9

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Keywords

  • Innovation
  • Employment
  • Growth
  • Capabilities
  • Norway

JEL classification

  • D21
  • D22
  • L25
  • O33