Innovation and Employment

Innovation and Employment

Process versus Product Innovation

Charles Edquist, Leif Hommen and Maureen McKelvey

Which kinds of growth lead to increased employment and which do not? This is one of the questions that this important volume attempts to answer. The book explores the complex relationships between innovation, growth and employment that are vital for both research into, and policy for, the creation of jobs.

Chapter 1: A Systems of Innovation Perspective on Employment

Charles Edquist, Leif Hommen and Maureen McKelvey

Subjects: economics and finance, economics of innovation, industrial economics, innovation and technology, economics of innovation


Although the relations between growth and employment are complex and difficult to grasp, they are also very important. Not all kinds of economic growth lead to more employment and not all kinds of productivity growth, as it is normally measured, lead to less employment.1 We also know from the ‘growth accounting’ literature (for example, Abramovitz, 1989, 1993; Denison, 1962; Maddison, 1991; Solow, 1957) that the ‘residual’, often equated with ‘technical change’, is a major source of productivity growth, although the causal relationships have seldom been clearly specified.2 In discussions about causes and effects of economic growth and productivity growth, creation and destruction of employment is an important part of the puzzle. It is, moreover, an especially complicated part, since the relationships between innovation and employment are seldom direct and immediate. Instead, the effects over time of technical change or innovation on employment are usually mediated by a number of offsetting factors (Vivarelli, 1995). These include effects on demand in other industries and sectors, ‘real income’ (or purchasing power) effects on the overall level of demand, and ‘adjustment’ effects in labour markets (for example, wage movements) that partly compensate for the substitution of labour (ibid.: 27-38). Moreover, all these factors are affected by macroeconomic conditions and the institutional and organizational characteristics of the economy (Vivarelli and Pianta, 2000: 1-11). As indicated by Gregersen and Johnson (1998a; 1998b), there is a great deal of theorizing and a huge literature on growth and its sources. Since practically everyone agrees that innovation is a...

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