Process versus Product Innovation
This is the first of three chapters that explore and discuss the relations between innovations and employment. The chapter focuses on process innovations. Process innovations refer to how things are produced, and can be technological or organizational. They are necessary for firms and countries to increase productivity and to maintain competitiveness relative to others. In this connection, competitiveness is usually considered to be largely a matter of cost reduction - and, often, of reducing labour costs. In a static perspective, process innovations thus often have the potential to reduce employment, but there are also second- and third-order effects which may increase employment - so-called ‘compensation effects’. The following sections address the immediate impacts of process innovation in different sectors. Moreover, they provide a basis for the discussion in Chapter 5 of (possible) compensation effects, other dynamic elements and relevant theoretical questions. 3.1 TECHNOLOGICAL PROCESS INNOVATIONS Technological process innovations (such as new machinery used in factories) are normally labour saving and often capital using per unit of output. Usually, therefore, new process technologies increase labour productivity and potentially reduce employment in the firm, country, sector or region where they are introduced. Hence the ‘immediate’ effect on employment is negative. However, second- and third-order consequences may partly offset the immediate effect - or even (more than) balance it, at least in principle. Hypothesis 1 The labour-saving effects of technological process innovations vary widely between sectors - in manufacturing as well as in service production. This hypothesis is broadly consistent with much of...
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