Effects of process and product‐oriented innovations on employee downsizing

Purpose – The purpose of this paper is to examine the role played by different types of firm innovation on employee downsizing. Drawing on economic and management views, the authors aims to assess the potential positive or negative effect of different types of processes (i.e. new technology via the introduction of new equipment as well as new methods of organizing the workforce) and product (i.e. number of innovations) innovations on employee downsizing. Design/methodology/approach – The empirical setting is a sample of Spanish manufacturing firms over the period 1994‐2006. The authors employ probit models for panel data as an empirical tool. Findings – The results show a negative and significant effect of process innovations associated with acquiring and deploying new production equipment and product‐oriented innovations on the probability of carrying out important reductions in workforce. However, a positive and significant effect is found when process innovations are linked to the adoption of new methods of organizing the workforce. Practical implications – Managers might play a significant role in employment creation, especially when they carry out process innovations related to the acquisition of complementary production assets (i.e. new equipment) and market highly innovative products. Policy makers might contribute to diminish the potential number of employees affected by firms’ downsizing strategies by designing, for example, public subsidies systems that deliberately prompt both types of innovations. Originality/value – The authors make an effort to provide alternative explanations about why firms downsize, as they analyze different types of process and product innovations whose effects on employment (and, thus, downsizing) do not seem to be clear. Moreover, the paper furthers one's understanding of the effect of firm innovation by focusing on the potential effect of one type of process innovation which has not been examined until now: the adoption and implementation of new methods of organizing the workforce owing to new technology.