Innovation and Employment

Technological innovation is expected to boost economic growth and have a sizable impact on employment. Nevertheless, economic and productivity growth can cast competing forces on labor demand with an ambiguous effect on employment which has been a major preoccupation in developing countries dealing with technical progress and trade liberalization. Furthermore, the impact on employment is likely to be mediated by the kind of innovation introduced. In this regard, the kind of shifts in employment that innovation brings matters for the definition of appropriate labor policies. The objective of this work is to analyze the effect of innovation on labor demand, particularly, the level of employment and the skills composition of the labor force. Thus, we test whether innovation and its different types affect the demand for employment and for skilled labor. The data for this study come from the Innovation Surveys for Uruguayan manufacturing firms over the 2000-2012 period. Our preliminary results for ordinary least squares and instrumental variables and generalized method of moments show positive effects of innovation in the level of total employment and skilled workers. For the share of skilled labor on total employment the evidence is not clear cut, while employment and skilled labor growth seem to be affected positively by innovation. Product innovation exhibit the highest impact on employment but also productivity enhancing innovation has a beneficial effect on employment and skilled labor.