Does innovation stimulate employment? A firm-level analysis using comparable micro data on four European countries

This paper studies the impact of process and product innovations introduced by firms on their employment growth. A model that relates employment growth to process innova- tions and to the growth of sales due to innovative and unchanged products is derived and estimated using a unique source of comparable firm-level data from France, Germany, Spain and the UK. Results for manufacturing show that, although process innovation tends to displace employment, compensation e ffects are prevalent, and product innova- tion is associated with employment growth. In the service sector there is less evidence of displacement e ffects, and growth in sales of new products accounts for a non-negligible proportion of employment growth. Overall the results are similar across countries, with some interesting exceptions.