Innovation and employment growth in manufacturing and services. A firm-level econometric approach from Uruguay

Abstract

This research sheds light on the effects of innovation on employment, both in terms of its quantity and quality, using Uruguayan manufacturing and services innovation surveys. Based on the model of Harrison et al. (2014) our research incorporates the distinction based on technology-intensity in manufacturing and knowledge-intensity in services, the distinction based on the firm size and separating skilled and unskilled labor. Furthermore, we make use of the same model to explore the heterogeneous impacts of different innovation strategies on innovation and employment in services vis a vis manufacturing. The overall conclusion of the thesis is that the relationship between innovation and employment is pretty complex phenomenon with several factors behind. We found a prominent role of product innovation in employment creation in the case of Uruguay. This type of innovation seems to have an impact on labor composition, having in general larger positive effects on skilled labor (with some exceptions such as low-tech subsector). Meanwhile process innovation appears to have a negligible or negative effect on employment; being the displacement effect in the latter case on unskilled labor. Consistent with the specificities of innovation in services some innovation activities like acquisition of hardware and software and training seem to be more important for employment growth in services; while acquisition of capital and in-house R&D are the strategies with larger impact in the case of manufacturing. The above findings enhance the value of product innovation as a strategy for productivity growth compatible with job creation for both manufacturing and services. At the same time poses a challenge in terms of human capital formation due the evidence that this type of innovation, as well as process innovation, is skills biased. The design of innovation and employment policies should also take into account that the impact of innovation on employment could differ by firm size, sector and type of workers. There should be an effort for greater coordination between innovation, employment and training policies in Uruguay.