The Employment Effects of Innovationsin High-Tech Industries

The issue of technological unemployment receives perennial popular attention. Althoughthere are previous empirical investigations that have focused on the relationship between innovationand employment, the originality of our approach lies in our choice of method. We focus onfour 2-digit manufacturing industries that are known for their high patenting activity. We thenuse Principal Components Analysis to generate a firm- and year-specific ‘innovativeness’ indexby extracting the common variance in a firm’s patenting and R&D expenditure histories. Tobegin with, we explore the heterogeneity of firms by using semi-parametric quantile regression.Whilst some firms may reduce employment levels after innovating, others increase employment.We then move on to a weighted least squares (WLS) analysis, which explicitly takes into accountthe different job-creating potential of firms of different sizes. As a result, we focus on the effectof innovation on total number of jobs, whereas previous studies have focused on the effect ofinnovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit ofanalysis, implicitly weighting each firm equally according to the principle of ‘one firm equals oneobservation’. Our results suggest that firm-level innovative activity leads to employment creationthat may have been underestimated in previous studies...