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Innovation, productivity and employment in European industries
Mario Pianta, Francesco BogliacinoUniversity of Urbino, Universidad EAFIT, Medellin
Workshop The impact of innovation on growth and employment”Rome, 23 June 2008
Results of the Interim Report of the University of Urbino project, funded by IPTS-Seville
THE IMPACT OF R&D AND INNOVATION ON ECONOMIC PERFORMANCE AND EMPLOYMENT:
A QUANTITATIVE ANALYSIS BASED ON INNOVATION SURVEY DATA
Key questions “How can we identify the nature and summarize
the variety of innovation? (at the industry level)” “How do different forms of innovation contribute
to better economic performances?” “How do different forms of innovation create or
destroy jobs?“
The state of the art on variety in innovation
Diversity of innovation (Schumpeter, Freeman, Nelson, Dosi, evolutionary approaches) in:
- the nature of technology and innovation (role of specif.knowl.,cumulat, path depend., localis.)
- the type of innovation (product/process/organis)- the technological capabilities across firms- the technological regimes across industries- national innovation systems across countries- the direction and trajectories of technological change The relevance of the industry level of analysis
(Pavitt’s taxonomy, technological regimes, sectoral systems of innovation, etc.)
From simplistic representations of technology
in economic studies, to the one dimensional focus on R&D or
patents, to the complexity shown by innovation
surveys How can innovation be studied empirically? Need for models (and data) that account for a
more complex pattern of innovation dynamics, and of its impact on economic performances and employment
Unit of analysisStrengths Weaknesses
FIRM heterogeneity of firms
no representativity
business stealing
INDUSTRY heterogeneity of industries
representativity
no business stealing
no intra-sector heterogeneity among firms
COUNTRY total economy aggregate effects
no space for variety
Developments in models of innovation strategies
Introduction of a distinction between: technological competitiveness, through knowledge
generation, R&D, product innovation and new markets
cost competitiveness, through new processes, greater capital intensity, job reductions, labour saving investment, flexibility and restructuring
Context, sources, type of innovation Role of sectoral, national systems of innovation Supply and demand interaction (Pianta, 2001)
Distinction between ind. dominated by diff. strategies, with diff. impacts Product innovations (new, improved
products, substitutes, etc.): new growing markets, faster dynamics of value added and productivity, greater employment
Process innovation (automation, restructuring, reorganisation): lower costs, more competitiveness (in a zero-sum type game), less employment
Recent published articles •(with F. Crespi) New processes and new products in Europe and Italy, Rivista di Politica Economica, 2008•(with F. Crespi) Diversity in innovation and productivity in Europe, Journal of Evolutionary Economics, 2008 •(with Andrea Vaona) Firm size and innovation in European manufacturing, Small Business Economics, 2007 •(with F. Crespi) Demand and Innovation in Productivity Growth. International Review of Applied Economics, 2008, 22 (5) •(with A.Vaona) Innovation and productivity in European industries, Economics of Innovation and New Technologies, 16 (7) 2007, 485-99.•(with F. Crespi) Demand and Innovation in European Industries, Economia Politica - Journal of Analytical and Institutional Economics, 2007, 24 (1): 79-111.
Need for a good (sectoral) taxonomyto account for diversity in innovation
Innovation trajectories (Dosi (1988)); need to isolate stylized facts about nature and determinants of innovative activity
Need to capture the “robust” heterogeneity: the differences that survived, with higher fitness.
Pavitt taxonomy 1984 Suppliers Dominated Specialized Suppliers Sale Intensive Science BasedData limited to UK Manufacturing
Tidd, Bessant and Pavitt 2005 Suppliers Dominated Specialized Suppliers Sale Intensive Science Based Information Intensive (services)Discussion:Growing importance of services and need to understand
them: Evangelista (2000), Evangelista and Savona (2003), Miozzo and Soete (2001)
“Robust” heterogeneity and not just variety: differences are everywhere (Sundbo and Gallouij (2001))
Other taxonomies: capabilities and vertical chain position (Castellacci (2007))
Developments in databases Sectoral Innovation Database,
University of Urbino 22 manuf. sectors, 17 service sectors 8 European countries: France, Germany, Italy, the
Netherlands, Portugal, the United Kingdom, Spain, Norway
Innovation Surveys CIS 2(1994-1996), CIS3 (1998-2000), CIS 4 (2002-2004)
Large set of economic variables from OECD STAN, KLEMS and Eurostat Input/output databases
Available variablesBasic Economic Information Country of the firm, Sector of the firm, Total population of firms Number of firms part of an enterprise group, Country of head office Total Turnover, Export, Total number of employees, Innovation Activity Number of firms introducing a new or significantly improved product or a
new or significantly improved process Number of firms introducing product innovations new to the market,
Number of firms introducing a product or service innovation, Number of firms introducing new or significantly improved products only
Number of firms introducing a process innovation, Number of firms introducing new or significantly improved processes only
Number of firms with cooperation arrangements on innovation Number of innovating firms with cooperation agreements with the group’s enterprises, Number of innovating firms with cooperation agreements with other enterprises (competitors, suppliers, customers, consultants or R&D enterprises); Number of innovating firms with cooperation agreements with public institutions (universities, government or private non profit research institutes)
Innovation Performance Turnover due to new or improved products, Turnover due to
unchanged products between, Turnover due to new products also new to the market
Type of Innovation activity (engagement and expenditure) Research and experimental development within the enterprise,
Acquisition of R&D services (extramural R&D), Acquisition of machinery and equipment linked to innovations, Other external knowledge, Training directly linked to technological innovation, Market introduction of technological innovations, Design, other preparation, Total innovation expenditure
Type of innovation strategy Extend product range Open up new markets or increase
market share Improving product quality Improve production flexibility Inc production capacity Reduce labour costs Reduce materials and energy consumption Reduce environmental damage Fulfilling regulations, standards
Contextual Factors and public support Firms receiving public funding for innovation Public funding
from local or regional Public funding from central government Public funding from EU Funding from EU 4th or 5th RTD
Sources of Innovation Sources from within the enterprise Other enterprises within the
enterprise group Suppliers of equipment, materials, components or software Clients or customers Competitors Universities or higher education institutes Government or private non-profit research institutes Professional conferences, meetings, journals Fairs, exhibitions
Obstacle to Innovation (innov and non innov firms) Economic Risk Innovation Cost Sources of finance
Organisational rigidities Lack of qualified personnel Lack of information on technology Lack of information on markets Regulations, standards Lack of customer responsiveness to new products
Patents and other Protection Methods Enterprise applied for at least a patent, Protection
through reg of design patterns Protection through trademark Protection through copyright Protection through secrecy Protection through complexity of design Protection through lead-time advantage
Innovation as Strategical and Organisational Change (Inn and non innov firms)
Implement of new corporate strategies Implement of management techniques Implement of changed organisation structure Changing ent marketing concepts/strategies Significant changes in aesthetic appear
Diversity in innovation
Test of the Pavitt 2005 taxonomy of 5 classes
Test of a Revised Pavitt taxonomy of 4 classes with the allocation of services in different groups (financial serv in Scale intensive)
Pavitt 2005SCIENCE BASEDChemicals Office machineryManufacture of communication equip.Manufacture of medical, precis.instrum.Computer Research and development INFORMATION INTENSIVECommunicationsFinanc. intermed., Auxil Act. to Fin.Int.Insurance and pension funding, Retail tradePrinting & publishing SCALE INTENSIVEPulp, paper & paper productsOil refining, Rubber & plasticsNon-metallic mineral productsBasic metals Motor vehicles
SPECIALISED SUPPLIERSMechanical engineeringElectrical machinery Other transport equipmentReal estateRenting of machinery Other business activities SUPPLIERS DOMINATEDFood, drinks, tobaccoTextiles, Clothing, Leather Wood & products Fabricated metal productsFurniture, miscellaneous Sale, repair of motor vehicles Wholesale tradeHotels & cateringInland transport, Water transportAir transport, Auxil.transport activities
Revised PavittSCIENCE BASEDChemicals Office machineryManufacture of communication equip.Manufacture of medical, precis.instrum.Computer Research and development CommunicationsSCALE and INFORMAT. INTENSIVEPulp, paper & paper productsPrinting & publishing Oil refining, Rubber & plasticsNon-metallic mineral productsBasic metals Motor vehicles Financial intermed., Auxil Activ to Fin.Int.Insurance and pension funding,
SPECIALISED SUPPLIERSMechanical engineeringElectrical machinery Other transport equipmentReal estateRenting of machinery Other business activities SUPPLIERS DOMINATEDFood, drinks, tobaccoTextiles, Clothing, Leather Wood & products Fabricated metal productsFurniture, miscellaneous Sale, repair of motor vehicles Retail tradeWholesale tradeHotels & cateringInland transport, Water transportAir transport, Auxil.transport activities
4 versus 5 class Pavitt taxonomies Descriptive analysis on several innovation
variables Multinomial logit of the taxonomy Model on the det. of the shares of innov firms
(OLS and Tobit) Model on the det. of innov. turnover (OLS and
Tobit)The five-class taxonomy is not robust: statistical
tests does not distinguish between Information Intensive and Scale Intensive Sectors
RevisedPavittSB 52 41 28 13 44 55SD 21 25 14 6 28 19SII 31 35 18 10 37 30SS 30 25 17 7 30 30TOTAL 31 31 18 9 34 30
CIS 4: SHARE OF FIRMS
Introd new products
Introd new processes
Aim open new mark
Aim reduc lab cost
Introd inn mach
In-house R&D
CIS 2 CIS 3 CIS 4
Revised Pavitt
1000s Euros on machinery per employee
1000s Euros on in house R&D per employee
1000s Euros on machinery per empl.
1000s Euros on in house R&D per employee
1000s Euros on machinery per empl.
1000s Euros on in house R&D per employee
SB 2.41 7.96 2.50 7.38 1.49 6.09 SD 1.02 0.40 1.03 0.60 1.36 0.42 SII 2.28 1.49 3.49 1.50 1.61 1.42 SS 1.12 3.61 1.09 3.02 0.87 2.98 TOTAL 1.69 2.52 2.07 2.47 1.39 2.13
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1 1.5 2 2.5Average Expenditure on Machinery per Employee
Figure 1 Ave rage innovative expenditure by Pavitt classes.
R&Dexp.perempl.
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18 20 22 24 26Average Share of Firm with Labour Saving Strategy
Figure 2 Average innovative strategy by Pavitt classes.
Sharesof innov.turnover
MARGINAL EFFECTS (1) (2) (3) (4) SB SII SS SD Share of firms introducing new products 0.008*** -0.012*** 0.005* -0.001 Share of firms introducing new process -0.005** 0.023*** -0.015*** -0.002 Rate of growth of Value Added 0.005* 0.003 0.006 -0.014** Share of Turnover from new products 0.006*** -0.010** 0.007*** -0.004 Share of firms aiming to reduce labour cost -0.005*** 0.001 0.001 0.003* In-house R&D expenditure per empl 0.040*** 0.023 0.066*** -0.130*** Machinery expenditure per empl -0.010 0.151*** -0.099*** -0.041 Est Prob. 10.97% 50.28% 20.75% 17.98%
Multin.Logitfor the Rev.Pavitt class.
LR test
H 0 :u 0 2(01) 0.50
pvalue 0.23
the Wald tests rejected the hypothesis of non-systematic differences among coefficients: for column (1)
Test on the det. of share of innovative firmswe use the Tobit model since random effects are rejected by the LR test:
Wald test(1)
H 0 : i j 2(15) 286.897
pvalue 0.0000
Wald test(3)
H 0 : i j 2(15) 45.61
pvalue 0.0000
and (3)
(1) (2)
OLS rob se
TOBIT bootstrap (50
rep) Share of firms introducing new products SB 0.404 0.404 (0.050)* ** (0.057)* ** Share of firms introducing new products SII 0.179 0.179 (0.042)* ** (0.050)* ** Share of firms introducing new products SS 0.417 0.417 (0.039)* ** (0.038)* ** Share of firms introducing new products SD 0.260 0.260 (0.040)* ** (0.043)* ** Rate of growth of Value Added SB 0.168 0.168 (0.248) (0.214) Rate of growth of Value Added SII 0.397 0.397 (0.184)* * (0.178)* * Rate of growth of Value Added SS 0.060 0.060 (0.379) (0.376) Rate of growth of Value Added SD -0.180 -0.180 (0.079)* * (0.082)* * Total Expenditure on Innovation per empl. SB 0.180 0.180 (0.220) (0.240) Total Expenditure on Innovation per empl. SII 0.623 0.623 (0.283)* * (0.256)* * Total Expenditure on Innovation per empl. SS 0.225 0.225 (0.189) (0.206) Total Expenditure on Innovation per empl. SD -0.288 -0.288 (0.206) (0.241) constant 5.670 5.670 (1.020)* ** (1.070)* ** N obs 518 518 R2 0.41 0.07
Det. of the share of innov. turnover
the Wald tests rejected the hypothesis of non-systematic differences among coefficients: for column (1)
and (2)
Wald test(1)
H 0 : i j 2(9) 348.684
pvalue 0.0000
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H 0 : i j 2(9) 111.55
pvalue 0.0000
Innovation mechanisms in the Revised Pavitt classes For Science Based and Specialised Suppliers
industries the main (and only) driver is product innovation
New products are relevant for all other groups (with lower coefficients)
Demand growth and total innovation expenditure (incl. new processes) are relevant for Scale and Information Intensive industries
Innovation is associated to demand reduction for Suppliers Dominated industries.
Innovation and productivity
“How do different forms of innovation contribute to better economic performances?”
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0 2 4 6 8Average Expenditure on In House R&D per employee
Growthof lab.product.(% ann)
Hierarchy of productivity perf. SB at 3.5% annual growth SII at 2% SD and SS at 1%
(but SS has high job creation)
This has implications on the overall perf. of national economies
The general model
y it tc it1 cc it2 dit3 it Lab. Product. growth is expected to be influenced (posit.) by
tech compet variables,cost compet variables,
demand variablesMETHOD•OLS estimates, adjust for heteroschedasticity, and intra-group correlation at industry level•Weighted regressions, with employment level of each industrygeneral regression for all industries; then separate regressions for each Revised Pavitt groups with more specific variables
Table 1. The determinants of labour productivity growth.
Dependent variable: Compound annual rate of change of labour productivity. *significant at the 90% level; **significant at 95%; ***significant at 99%. Standard errors in parentheses. 1 WLS rob s.e. Innovation for Technological Competitiveness In-house R&D expenditure per employee 0.147 (0.044)*** Innovation for Cost Competitiveness Machinery expenditure 0.167 (0.073)** Demand Rate of growth of Value Added 0.695 (0.052)*** constant -0.202 (0.270) N obs 603 R2 0.48
Table 1. The determinants of labour productivity growth in the Revised Pavitt classes
Dependent variable: Compound annual rate of change of labour productivity. *significant at the 90% level; **significant at 95%; ***significant at 99%. Standard errors in parentheses. 1 2 3 4 SB SI I SS SD WLS rob s.e. WLS rob s.e. WLS rob s.e. WLS rob s.e. Innovation for Technological Competitiveness
In-house R&D expenditure per employee 0.112 -0.081 0.291 0.237 (0.065)* (0.091) (0.115)** (0.142)* Innovation for Cost Competitiveness
Machinery expenditure 0.087 0.087 0.282 0.167 (0.122) (0.106) (0.202) (0.166) Demand Rate of growth of Value Added 0.736 0.833 0.775 0.471 (0.143)*** (0.068)*** (0.089)*** (0.092)*** constant 0.632 0.872 -1.589 -0.021 (0.838) (0.421)** (0.658)** (0.374) N obs 108 181 89 225 R2 0.51 0.73 0.57 0.18
Results of specific models: Science Based
search for techn. compet. (R&D and patents); role of suppliers of equipment as the source of (process) innovation (user-producer interactions); demand growth is important (increasing returns)
Scale and Information Intensive industries mainly cost compet. (suppl. of equipm. as source of new processes); mid-level skills of workers with second. educat.; search for new markets has no effect; demand growth (new serv).
Specialised Suppliers more complex results; techn. compet. (R&D) and cost compet. (aim at lower lab. costs or more flex. processes); spec. role of interaction with clients; demand growth is highly important.
Suppliers Dominated cost competitiveness, (search for more flex.); clients as sources of innovation; mid-level skills of workers with second. educ.; demand plays a role (lower coeff)
Innovation and employment
“How do different forms of innovation create or destroy jobs?“
Empl. growth is expected to be influenced by tech compet variables (+) cost compet variables (-)
demand variables (+) wage growth (-)
METHOD OLS estimates, adjust for heteroschedasticity, and intra-
group correlation at industry level Weighted regressions, with employment level of each
industry general regression for all industries; then separate regressions for each Revised Pavitt groups
with more specific variables
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1 2 3 4WLS rob s.e. WLS rob s.e. WLS rob s.e. WLS rob s.e.
Innovation for Technological Competitiveness
In-house R&D expenditure per employee -0.125 -0.139(0.046)* * * (0.043)* * *
Innovation for Cost Competitiveness
Machinery expenditure per employee -0.197 -0.196(0.079)* * (0.074)* * *
General Innovation
Total Innovative expenditure per employee -0.074 -0.076(0.028)* * (0.029)* *
Share of innovative firms -0.031 -0.032(0.008)* * * (0.009)* * *
Wages
Rate o growth of Labour Compensation -0.436 -0.462(0.088)* * * (0.082)* * *
Demand
Rate of growth of Value Added 0.323 0.314 0.319 0.305(0.065)* * * (0.055)* * * (0.065)* * * (0.055)* * *
constant 0.552 1.666(0.264)* * * (0.432)* * *
time dummies X X
N obs 600 603 607 610R2 0.3 0.2 0.31 0.21
Gen. model for empl. change
General findings
Job losses are found in the majority of manufacturing and service industries; in some SB and SS ind. there is job creation.
General negative effects of all innov. var. on jobs.in partic. strategies for cost competitiveness based on labour saving process innovations have strong effects on job losses
Demand growth has a positive effect, wage costs are a factor reducing employment.
1 2 3 4 SB SI SS SD WLS rob s.e. WLS rob s.e. WLS rob s.e. WLS rob s.e. Innovation for Technological Competitiveness
In-house R&D expenditure per employee -0.095 0.091 -0.273 -0.133 (0.063)** (0.094) (0.115)** (0.162) Innovation for Cost Competitiveness Machinery expenditure -0.101 -0.089 -0.315 -0.278 (0.104) (0.110) (0.207) (0.168) Wages Rate of growth of Labour Compensation per employee -0.383 -0.132 -0.512 -0.682 (0.108)*** (0.149) (0.124)*** (0.103)*** Demand Rate of growth of Value Added 0.284 0.160 0.293 0.571 (0.141)*** (0.074)** (0.082)*** (0.073)*** constant -0.466 -0.783 2.151 0.480 (0.791)*** (0.460)* (0.622)*** (0.288)* N obs 108 181 89 222 R2 0.28 0.14 0.45 0.49
Results of specific models: Science Based
New jobs linked to search for new markets and exports (not R&D); new processes, search for lower lab costs and wage growth reduce empl.
Scale and Information Intensive industries Job losses associated to cost competitiveness (suppl. of equipm. as source of new processes); innov turnover, demand (new serv) and exports have a positive effect
Specialised Suppliers New jobs linked to search for flexib. production and demand; negative effect of innov variables, clients as sources of innov and wages
Suppliers Dominated Job losses linked to overall negative effects of innov variables and wages, positive effects of demand
Integrating the findings Strong specificity of the results for the 4
Revised Pavitt classes: they do capture different mechanisms of innov. and econ perf.
Productivity growth is supported by the two strategies of tech compet and cost compet in different ways:
Both for SB (3.5% product growth) and SS Cost compet only for SII and SD (1-2%
growth) Demands is always relevant
Why weak posit. links innov-empl? Science Based with strong innov, new demand and
product: why weak links?a. high int’l competition, winners and losers across EU
countries, no gen. effect of tech compet.?b. have the large no. of (mid skill) jobs gone abroad in
int’l product. systems? Specialised Suppliers with small size, no linear
model of innov, no role of innov intensities:a. niche effects? b. have the jobs gone to client industries?
Why strong negat innov-empl links?
Scale and Info Intensive & Suppliers Dominat: Dominance of cost compet strategy, using innovat.
in several ways for restructuring and job losses Innov is necessary, but the gains in terms of cost
compet are small (half the product. growth of SB: lots of innov induced job losses lead to small productivity gains)
Demand is the only opportunity for job creation in these sectors
Further research on empl effects Diversity of employm effects on skill groups:
test of specific complementarities between different innovations and skills
Is there a role of int’l production? Beyond the job losses to imports? Are innov-led productivity gains kept in countries, but jobs transfered abroad?
