Process versus Product Innovation
A product innovation occurs when something new is produced (and sold), either for the first time ever or for the first time in a firm, or in a country or region.1 This means that new economic activities are established, or existing activities change direction. Thereby product innovations involve changes in the structure of production. This may also include new investments in buildings and machinery, and/or using existing resources for new purposes. The immediate impact on employment may be positive if new areas are developed, or the immediate impact on employment may be neutral if labour is transferred from one area to another. Despite their apparent importance for economic and industrial dynamics, product innovations are a neglected issue in mainstream economic theory, as is also true for the analysis of their impact on employment. In large part, this is due to the fact that product innovations are usually dealt with as ‘one compensation mechanism among others’ in respect of process innovations, rather than being addressed separately, as a special kind of determinant of employment. For example, this ‘compensation’ approach is followed by Vivarelli (1995), who provides a comprehensive review of theories of compensation and compensation mechanisms. It should be noted, however, that Vivarelli’s own argument is that product innovation, as opposed to other compensation mechanisms, is an especially powerful factor in the reduction of technological unemployment caused by process innovation (ibid.: 169). Vivarelli’s reasoning is highly consistent with that of Pasinetti (1981), who developed a theoretical model demonstrating the existence of...
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