Abstract
The aim of this paper is twofold. On the one hand, the economic insights on the employment impact of technological change are discussed covering both classical theories and updated theoretical and empirical analyses. On the other hand, an empirical test is provided; in particular, longitudinal data—covering manufacturing and service sectors over the 1998–2011 period for 11 European countries—are used to run GMM-SYS and LSDVC estimates. Two are the main results: (1) a significant labor-friendly impact of R&D expenditures (mainly related to product innovation) is found; yet, this positive employment effect appears to be entirely due to medium and high-tech sectors, while no effect can be detected in low-tech industries; (2) capital formation is found to be negatively related to employment; this outcome suggests a possible labor-saving effect due to the embodied technological change incorporated in gross investment (mainly related to process innovation).
Similar content being viewed by others
Notes
Atkinson (2015) discusses the changing nature of ‘jobs’ in contemporary economies.
Basically this literature refers to process innovations that are general-purpose technologies. For a treatment and an analysis of non-general purpose technologies, see, for instance, Grimalda (2016).
Indeed, also business cycles might have an impact on the innovation-employment nexus as they are ‘generated’ by innovation à la Schumpeter, but they may also affect propensity to invest à la Keynes (see Guarascio et al. 2015, for an analysis).
The empirical studies devoted to the relationship between innovation and employment have mainly focused on high-income countries (see Sect. 3), especially OECD countries (basically because of data availability), meanwhile only recently the phenomenon has been investigated in developing countries (see Meschi et al. 2011, for an application to the Turkish case; Mitra and Jha 2015, for an application to the Indian case and Mendoza Cota 2016, for an application in Mexico where new technological paradigms allow organizational change and offshoring).
Value added has been deflated using the sectoral deflators provided by STAN, which take (quality adjusted) hedonic prices into account. All other nominal variables have been deflated using GDP deflators. We have considered 2010 as the base year. We have corrected all the series for purchasing power parities, expressing, at the end, all the monetary values in constant prices and PPP 2010 US dollars (in order to be consistent within our statistical sources, we used information provided by OECD: http://stats.oecd.org/ where deflators, exchange rates and PPP series are available).
An important source of heterogeneity at the sectoral level may be due to the overall difference in innovation strategy (see Bogliacino and Pianta 2016).
The set of country dummies control for the possible impact of different national macroeconomic situations and specific economic policies, while the set of time dummies capture both the economic business cycle and possible supply side effects in the European labor market. However, this specification, while recalling the main economic variables affecting the employment dynamics, does not allow singling out the effects of all the compensation mechanisms.
To initialize the PIM it is necessary to input historical capital and R&D growth rates. To avoid losing observations, we have calculated the average compound growth rates over the period 1998–2003 and used them as the growth rates for computing the initial 1998 stocks. Whenever the growth rates were negative we have used zero. As far as depreciation rates are concerned, we have used the reference rates in the literature: 15% for R&D and 6% for physical capital (see Musgrave 1986; Bischoff and Kokkelenberg 1987; Nadiri and Prucha 1996 for physical capital; Pakes and Schankerman 1986; Hall 2007; Aiello and Cardamone 2008 for knowledge capital). For obvious reasons, the literature assumes the obsolescence of knowledge capital to be faster than that of physical capital.
This methodology is based on the within group estimator, but corrected for its asymptotic bias (see Kiviet 1995, 1999; Bun and Kiviet 2003). The procedure must be initialized by a dynamic panel data estimate and we have opted for the less demanding GMM-DIF. Robust standard errors have been obtained through bootstrapping, with 50 iterations.
Interestingly enough, the negative role of wages in affecting employment seems to be limited to the low-tech sectors, where competition is mainly based on cost-saving rather than on innovation.
References
Aiello, F., & Cardamone, P. (2008). R&D spillovers and firms’ performance in Italy. Empirical Economics, 34, 143–166.
Antonucci, T., & Pianta, M. (2002). Employment effects of product and process innovation in Europe. International Review of Applied Economics, 16, 295–307.
Appelbaum, E., & Schettkat, R. (1995). Employment and productivity in industrialized economies. International Labour Review, 134, 605–623.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58, 277–297.
Arntz, M., Gregory, T., & Zierahn, U. (2016). The risk of automation for jobs in OECD countries: A comparative analysis. OECD Social, Employment and Migration Working Papers n. 189, Paris.
Atkinson, A. B. (2015). Inequality: What can be done?. Cambridge (Mass.): Harvard University Press.
Bischoff, C. W., & Kokkelenberg, E. C. (1987). Capacity utilization and depreciation-in use. Applied Economics, 19, 995–1007.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115–143.
Bogliacino, F. (2014). Innovation and employment: A firm level analysis with European R&D Scoreboard data. EconomiA, 15, 141–154.
Bogliacino, F., Guarascio, D., & Cirillo, V. (2017). The dynamics of profits and wages: technology, offshoring and demand. Industry and Innovation. (forthcoming).
Bogliacino, F., & Pianta, M. (2010). Innovation and employment. A reinvestigation using revised Pavitt classes. Research Policy, 39, 799–809.
Bogliacino, F., & Pianta, M. (2016). The Pavitt taxonomy, revisited: Patterns of innovation in manufacturing and services. Economia Politica, 33, 153–180.
Bogliacino, F., Piva, M., & Vivarelli, M. (2012). R&D and employment: An application of the LSDVC estimator using European data. Economics Letters, 116, 56–59.
Bogliacino, F., & Vivarelli, M. (2012). The job creation effect of R&D expenditures. Australian Economic Papers, 51, 96–113.
Boyer, R. (1988a). Assessing the impact of R&D on employment: Puzzle or consensus? Paper presented at the International Conference on New Technology: Its Impacts on Labour Markets and the Employment System, December 5–7, Berlin.
Boyer, R. (1988b). Technical change and the theory of regulation. In G. Dosi, C. Freeman, R. R. Nelson, G. Silverberg, & L. Soete (Eds.), Technical change and the economic theory (pp. 67–94). London: Pinter.
Boyer, R. (1990). The capital labour relations in OECD countries: From the Fordist “Golden Age” to contrasted national trajectories. Working paper CEPREMAP, 9020, Paris.
Bruno, G. S. C. (2005a). Estimation and inference in dynamic unbalanced panel data models with a small number of individuals. Stata Journal, 5, 473–500.
Bruno, G. S. C. (2005b). Approximating the bias of the LSDVC estimator for dynamic unbalanced panel data models. Economic Letters, 87, 361–366.
Brynjolfsson, E., & McAfee, A. (2011). Race against the machine: How the digital revolution is accelerating innovation, driving productivity, and irreversibly transforming employment and the economy. Lexington, MA: Digital Frontier Press.
Brynjolfsson, E., & McAfee, A. (2014). The second machine age: Work, progress, and prosperity in a time of brilliant technologies. New York: W.W. Norton.
Bun, M. J. G., & Kiviet, J. F. (2003). On the diminishing returns of higher order terms in asymptotic expansions of bias. Economics Letters, 79, 145–152.
Calvino, F., & Virgillito, M.E. (2017). The innovation-employment nexus: A critical survey of theory and empirics. Journal of Economic Surveys. (forthcoming).
Ciriaci, D., Moncada-Paternò-Castello, P., & Voigt, P. (2016). Innovation and job creation: A sustainable relation? Eurasian Business Review, 6, 189–213.
Clark, J. (1983). Employment projections and technological change. In D. L. Bosworth (Ed.), The employment consequences of technical change (pp. 110–125). London: Macmillan.
Clark, J. (1987). A vintage-capital simulation model. In C. Freeman & L. Soete (Eds.), Technical change and full employment (pp. 86–98). Oxford: Basil Blackwell.
Coad, A., & Rao, R. (2011). The firm-level employment effects of innovations in high-tech US manufacturing industries. Journal of Evolutionary Economics, 21, 255–283.
Crespi, F., Ghisetti, C., & Quatraro, F. (2015). Environmental and innovation policies for the evolution of green technologies: A survey and a test. Eurasian Business Review, 5, 343–370.
Crespi, G., & Tacsir, E. (2012). Effects of innovation on employment in Latin America. Inter-American Development Bank Institutions for Development (IFD) Technical Note No.IDB-TN-496. Inter-American Development Bank, Washington, DC.
Dosi, G. (1982). Technological paradigms and technological trajectories. Research Policy, 11, 147–163.
Dosi, G. (1988). Source, procedure and microeconomic effects of innovation. Journal of Economic Literature, 26, 1120–1171.
Edquist, C., Hommen, L., & McKelvey, M. (2001). Innovation and employment: Product versus process innovation. Cheltenham: Elgar.
European Commission. (2010). Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. Europe 2020 Flagship Initiative Innovation Union, COM(2010) 546 final. European Commission, Brussels.
Evangelista, R. (2000). Sectoral patterns of technological change in services. Economics of Innovation and New Technology, 9, 183–222.
Evangelista, R., & Savona, M. (2002). The impact of innovation on employment in services: Evidence from Italy. International Review of Applied Economics, 16, 309–318.
Feldmann, H. (2013). Technological unemployment in industrial countries. Journal of Evolutionary Economics, 23, 1099–1126.
Freeman, C., Clark, J., & Soete, L. (1982). Unemployment and technical innovation. London: Pinter.
Freeman, C., & Soete, L. (Eds.). (1987). Technical change and full employment. Oxford: Basil Blackwell.
Freeman, C., & Soete, L. (1994). Work for all or mass unemployment? Computerised technical change into the twenty-first century. London-New York: Pinter.
Frey, C. B., & Osborne, M. A. (2017). The future of employment: how susceptible are jobs to computerisation? Technological Forecasting and Social Change, 114, 254–280.
Gagliardi, L., Marin, G., & Miriello, C. (2016). The greener the better? Job creation effects of environmentally-friendly technological change. Industrial and Corporate Change, 25, 779–807.
Greenan, N., & Guellec, D. (2000). Technological innovation and employment reallocation. Labour, 14, 547–590.
Grimalda, G. (2016). Can labour market rigidity foster economic efficiency? A model with non-general purpose technical change. Eurasian Business Review, 6, 79–99.
Guarascio, D., Pianta, M., Lucchese, M., & Bogliacino, F. (2015). Business cycles, technology and exports. Economia Politica, 32, 167–200.
Hall, B. H. (2007). Measuring the returns to R&D: The depreciation problem. NBER Working Papers 13473, Cambridge (Mass.).
Hall, B. H., Lotti, F., & Mairesse, J. (2008). Employment, innovation, and productivity: Evidence from Italian microdata. Industrial and Corporate Change, 17, 813–839.
Harrison, R., Jaumandreu, J., Mairesse, J., & Peters, B. (2008). Does innovation stimulate employment? A firm-level analysis using comparable micro-data from four European countries. NBER Working Papers 14216, Cambridge (Mass.).
Harrison, R., Jaumandreu, J., Mairesse, J., & Peters, B. (2014). Does innovation stimulate employment? A firm-level analysis using comparable micro-data from four European countries. International Journal of Industrial Organization, 35, 29–43.
Hicks, J. R. (1932). The theory of wages. London: Macmillan.
Hicks, J. R. (1973). Capital and time. Oxford: Oxford University Press.
Hobsbawm, E. J. (1968). Industry and empire: An economic history of Britain since 1750. Harmondsworth Middlesex: Penguin Books.
Hobsbawm, E. J., & Rudé, G. (1969). Captain swing. London: London Reader’s Union.
Katsoulacos, Y. S. (1984). Product innovation and employment. European Economic Review, 26, 83–108.
Katsoulacos, Y. S. (1986). The employment effect of technical change. Brighton: Wheatsheaf.
Kiviet, J. F. (1995). On bias, inconsistency and efficiency of various estimators in dynamic panel data models. Journal of Econometrics, 68, 53–78.
Kiviet, J. F. (1999). Expectation of expansions for estimators in a dynamic panel data model. Some results for weakly exogenous regressors. In C. Hsiao, K. Lahiri, L. F. Lee & M. H. Pesaran (Eds.) Analysis of panel data and limited dependent variables (pp. 199–225). Cambridge: Cambridge University Press.
Lachenmaier, S., & Rottmann, H. (2011). Effects of innovation on employment: A dynamic panel analysis. International Journal of Industrial Organization, 29, 210–220.
Layard, R., & Nickell, S. (1985). The causes of British unemployment. National Institute Economic Review, 111, 62–85.
Malthus, T. R. (1964). Principles of political economy. New York: M. Kelley. (first edn 1836).
Marshall, A. (1961). Principles of economics. Cambridge: Macmillan. (first edn 1890).
Marx, K. (1961). Capital. Moscow: Foreign Languages Publishing House. (first edn 1867).
Marx, K. (1969). Theories of surplus value. London: Lawrence & Wishart. (first edn. 1905–10).
Mastrostefano, V., & Pianta, M. (2009). Technology and jobs. Economics of Innovation and New Technology, 18, 729–741.
Mendoza Cota, J. E. (2016). US manufacturing imports from China and employment in the Mexican manufacturing sector. Cuadernos de Economia, 35, 583–613.
Meschi, E., Taymaz, E., & Vivarelli, M. (2011). Trade, technology and skills: Evidence from Turkish microdata. Labour Economics, 18, S60–S70.
Mill, J. S. (1976). Principles of political economy. New York: M. Kelley. (first edn 1848).
Mitra, A., & Jha, A. (2015). Innovation and employment: A firm level study of Indian industries. Eurasian Business Review, 5, 45–71.
Musgrave, J. C. (1986). Fixed reproducible tangible wealth series in the United States, 1925–91. Survey of Current Business, 66, 51–75.
Nadiri, M. I., & Prucha, I. R. (1996). Estimation of the depreciation rate of physical and R&D Capital in the US total manufacturing sector. Economic Inquiry, 34, 43–56.
Nickell, S., & Kong, P. (1989). Technical progress and jobs. Centre for Labour Economics. Discussion Paper 366, London School of Economics, London.
OECD. (2016). ICT and jobs: Complements or substitutes? The effects of ICT investment on labour market demand by skills and by industry in selected OECD countries. 2016 Ministerial Meeting on the Digital Economy Technical Report, OECD Digital Economy Papers n. 259, Paris.
Pakes, A., & Schankerman, M. (1986). Estimates of the value of patent rights in European countries during the post-1950 period. Economic Journal, 96, 1052–1076.
Pasinetti, L. (1981). Structural change and economic growth. Cambridge: Cambridge University Press.
Petit, P. (1995). Employment and technological change. In P. Stoneman (Ed.), Handbook of the economics of innovation and technological change (pp. 366–408). Amsterdam: North Holland.
Pianta, M. (2000). The employment impact of product and process innovations. In M. Vivarelli & M. Pianta (Eds.), The employment impact of innovation: Evidence and policy (pp. 77–95). London: Routledge.
Pianta, M. (2005). Innovation and employment. In J. Fagerberg, D. Mowery, & R. R. Nelson (Eds.), Handbook of innovation (pp. 568–598). Oxford: Oxford University Press.
Piva, M., & Vivarelli, M. (2004). Technological change and employment: Some micro evidence from Italy. Applied Economics Letters, 11, 373–376.
Piva, M., & Vivarelli, M. (2005). Innovation and employment: Evidence from Italian microdata. Journal of Economics, 86, 65–83.
Ricardo, D. (1951). Principles of Political Economy. In P. Sraffa (Ed.), The works and correspondence of David Ricardo (Vol. 1). Cambridge: Cambridge University Press. (third edn 1821).
Say, J. B. (1964). A treatise on political economy or the production, distribution and consumption of wealth. New York: M. Kelley. (first edn 1803).
Simonetti, R., Taylor, K., & Vivarelli, M. (2000). Modelling the employment impact of innovation. In M. Vivarelli & M. Pianta (Eds.), The employment impact of innovation: Evidence and policy (pp. 26–43). London: Routledge.
Sinclair, P. J. N. (1981). When will technical progress destroy jobs? Oxford Economic Papers, 31, 1–18.
Sismondi, J. C. L. (1971). Nouveaux Principes d’Economie Politique ou de la Richesse dans ses Rapports avec la Population. Paris: Calmann-Levy. (first edn 1819).
Steuart, J. (1966). An Inquiry into the principles of political economy. Chicago: Oliver and Boyd. (first edn 1767).
Stoneman, P. (1983). The economic analysis of technological change. Oxford: Oxford University Press.
Sylos Labini, P. (1969). Oligopoly and technical progress. Cambridge (Mass.): Harvard University Press. (first edn 1956).
UNIDO. (2013). Industrial Development Report 2013. Sustaining employment growth: The role of manufacturing and structural change. Vienna: United Nations Industrial Development Organization.
van Reenen, J. (1997). Employment and technological innovation: Evidence from U.K. manufacturing firms. Journal of Labour Economics, 15, 255–284.
Vivarelli, M. (1995). The economics of technology and employment: Theory and empirical evidence. Aldershot: Elgar.
Vivarelli, M. (2013). Technology, employment and skills: An interpretative framework. Eurasian Business Review, 3, 66–89.
Vivarelli, M. (2014). Innovation, employment and skills in advanced and developing countries: A survey of economic literature. Journal of Economic Issues, 48, 123–154.
Vivarelli, M., Evangelista, R., & Pianta, M. (1996). Innovation and employment in Italian manufacturing industry. Research Policy, 25, 1013–1026.
Vivarelli, M., & Pianta, M. (Eds.). (2000). The employment impact of innovation: Evidence and policy. London: Routledge.
Wicksell, K. (1961). Lectures on political economy. London: Routledge & Kegan. (first edn 1901–1906).
Acknowledgements
We would like to thank two anonymous referees for their detailed comments and useful suggestions.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Piva, M., Vivarelli, M. Technological change and employment: is Europe ready for the challenge?. Eurasian Bus Rev 8, 13–32 (2018). https://doi.org/10.1007/s40821-017-0100-x
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40821-017-0100-x