Study on the effect of innovation on employment structure and economic growth: A computable general equilibrium approach

In the 1990s and the early part of the 2000s, many countries in the world have gone through the ‘jobless growth’ in which employment stalled while economy grew. In many countries since the global financial crisis, there has also been occasions where the unemployment rate has increased instead of falling although the economy has bounced back. Likewise, South Korea has been going through this ‘jobless growth’ since the middle of the 2000s. There are various claims in the circles of economics as to the cause of such phenomenon, one of which is that it’s due to technological innovation. That is, as technologies progress, productivity and output increases, but the demand for jobs decreases and has a bad influence on employment. Particularly, in the case of South Korea, which has reached the highest degree of intensity in its investment in R&D as continuous investment therein has increased, points are being raised that this is the cause of the ‘jobless growth’. Not only the quantitative aspect of employment but also the qualitative aspect is an issue, and, while technological innovation increases the demand for skilled laborers, it stunts the demand for unskilled laborers. That is, it brings about skill-biased technology change. Especially, Brynjolfsson and McAfee (2014) claimed in their book ‘The Second Machine Age’ that, as information communication technology advances, new technologies and machines replace jobs faster, technological innovation causes skill-biased technology change and capital-biased technology change, and leads to income polarization. However, the recently raised arguments are only considering the direct influences that innovation has on employment.Therefore, the influence of innovation on employment and growth should be examined with its indirect effects as well as direct. Hence, in this study, using the computable general equilibrium model, which is capable of concurrently considering various aspects of economy, it was intended to examine what influence innovation has on employment structure and economic growth. The innovation affects employment through various routes. Especially, when diversity of products increases through innovation, it leads to indirect influences in which new demand is created and the employment increases. Therefore, the influence of innovation on employment and growth should be examined with its indirect effects as well as direct. Hence, in this study, using the computable general equilibrium model, which is capable of concurrently considering various aspects of economy, it was intended to examine what influence innovation has on employment structure and economic growth. For this, knowledge-based Social Accounting Matrix and knowledge-based computable general equilibrium model have been constructed. The result of the study utilizing the knowledge-based computable general equilibrium model is summed up as follows. Viewed from the employment aspect first, additional innovative activities turned out to increase the total demand of labor, increasing the demand for unskilled, skilled, and high-skilled labor all together. The demand for the high-skilled labor especially showed the highest increase rate. When examined by the industry, the high-tech manufacturing which invests heavily in R&D also showed the greatest rate of employment increase. In sequence, when viewed from the aspect of economic growth, additional innovative activities turned out to have a positive influence on economic growth, which led to the increase in all production elements’ added values. In the case of capital, high-skilled labor, and knowledge, however, while their weights in added values have increased, unskilled and skilled labors’ weights in added value turned out to have decreased by the capital-biased technology change and the skill-biased technology change. Accordingly, the foregoing turned out to have a bad influence on income distribution and deepened income polarization. Meanwhile, when viewed by the industry, due to the additional innovative activities, the output of the manufacturing industry turned out to show a higher increase rate than that of the service industry.