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 5: Dynamic and Secondary Effects of Systemic Interaction

Charles Edquist, Leif Hommen and Maureen McKelvey

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


The preceding chapters have mainly examined the immediate or direct effects of product and process innovation on employment. The direct effects of process innovation were shown to be job destruction, and of product innovation, job creation. This chapter moves on to the more dynamic aspects of the interactions of these two types of innovation within the economy as an interrelated system. We will investigate the extent to which their direct effects are counteracted by other employment effects. First, compensation effects related to process innovation are considered in section 5.1. Compensation mechanisms are those which mitigate the negative effect on employment of process innovations and which are directly linked to it. The ‘theoretical’ discussion here forms a counterpart to the more ‘empirical’ discussion of process innovations and employment in Chapter 3 and, in particular, section 3.1. Subsequently, sections 5.2 and 5.3 discuss two dynamic aspects of product innovation, namely, substitution between products, and whether a product innovation is later used as a process innovation. These dynamic aspects of systemic interaction partly offset the immediate employment-generating effect of product innovation and could perhaps alternatively be labelled ‘negative compensation effects’. These counteracting factors are much less discussed in the literature than the compensation mechanisms related to process innovation. In section 5.4 we also refer to dynamic complementarities between goods and services as a basis for product innovation and job creation in services. 5.1 COMPENSATION MECHANISMS IN PROCESS INNOVATIONS The topic of compensation mechanisms, briefly introduced in Chapter 3, section 3.1, can be revisited...

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