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Barbara Jones and Damian Grimshaw

Skills and innovation are often claimed to be the twin engines of economic growth, but there is a surprisingly limited appreciation in the literature on innovation and innovation policy of how these core features combine and interact both at the firm level and at the interface between tertiary education and industry. Because of that lack, this chapter develops a number of key analytical concepts to make the relevant links between skill formation and innovation performance. The chapter in particular reports the relative merits and challenges of two important areas of education and training policy, that is, levy schemes for enterprise training and policies for high-level skill formation. Against the background of little systematic evidence as to the link between skill formation and innovation performance, two strong key findings emerge: a positive association between innovative firms and the level of expenditures on formal and informal training compared to non-innovative firms; and that firms benefit from a significant positive effect by developing their ‘knowledge pool’. Overall, there is an apparent need for policy to support high skill-mixes as well as intermediary technical skills within firms – rather than through buy-in – through better incentives. Moreover, there is a strong need to develop improved concepts and empirical research to better understand the benefit of skills for innovation performance, not least in order to help firms to better grasp the overall benefit of skills and thus invest in them.