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Technological change and employment: is Europe ready for the challenge?

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Abstract

The aim of this paper is twofold. On the one hand, the economic insights on the employment impact of technological change are discussed covering both classical theories and updated theoretical and empirical analyses. On the other hand, an empirical test is provided; in particular, longitudinal data—covering manufacturing and service sectors over the 1998–2011 period for 11 European countries—are used to run GMM-SYS and LSDVC estimates. Two are the main results: (1) a significant labor-friendly impact of R&D expenditures (mainly related to product innovation) is found; yet, this positive employment effect appears to be entirely due to medium and high-tech sectors, while no effect can be detected in low-tech industries; (2) capital formation is found to be negatively related to employment; this outcome suggests a possible labor-saving effect due to the embodied technological change incorporated in gross investment (mainly related to process innovation).

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Notes

  1. Atkinson (2015) discusses the changing nature of ‘jobs’ in contemporary economies.

  2. Basically this literature refers to process innovations that are general-purpose technologies. For a treatment and an analysis of non-general purpose technologies, see, for instance, Grimalda (2016).

  3. Indeed, also business cycles might have an impact on the innovation-employment nexus as they are ‘generated’ by innovation à la Schumpeter, but they may also affect propensity to invest à la Keynes (see Guarascio et al. 2015, for an analysis).

  4. For instance, nowadays, the role of green innovation is crucial, also in terms of likely employment impact: see Crespi et al. (2015) and Gagliardi et al. (2016).

  5. The empirical studies devoted to the relationship between innovation and employment have mainly focused on high-income countries (see Sect. 3), especially OECD countries (basically because of data availability), meanwhile only recently the phenomenon has been investigated in developing countries (see Meschi et al. 2011, for an application to the Turkish case; Mitra and Jha 2015, for an application to the Indian case and Mendoza Cota 2016, for an application in Mexico where new technological paradigms allow organizational change and offshoring).

  6. Value added has been deflated using the sectoral deflators provided by STAN, which take (quality adjusted) hedonic prices into account. All other nominal variables have been deflated using GDP deflators. We have considered 2010 as the base year. We have corrected all the series for purchasing power parities, expressing, at the end, all the monetary values in constant prices and PPP 2010 US dollars (in order to be consistent within our statistical sources, we used information provided by OECD: http://stats.oecd.org/ where deflators, exchange rates and PPP series are available).

  7. See: http://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Hightech_classification_of_manufacturing_industries; http://ec.europa.eu/eurostat/cache/metadata/Annexes/htec_esms_an3.pdf.

  8. An important source of heterogeneity at the sectoral level may be due to the overall difference in innovation strategy (see Bogliacino and Pianta 2016).

  9. Indeed, the estimation of an employment equation is the standard example for which a panel dynamic specification turns out to be the proper econometric strategy (see Arellano and Bond 1991; van Reenen 1997).

  10. The set of country dummies control for the possible impact of different national macroeconomic situations and specific economic policies, while the set of time dummies capture both the economic business cycle and possible supply side effects in the European labor market. However, this specification, while recalling the main economic variables affecting the employment dynamics, does not allow singling out the effects of all the compensation mechanisms.

  11. To initialize the PIM it is necessary to input historical capital and R&D growth rates. To avoid losing observations, we have calculated the average compound growth rates over the period 1998–2003 and used them as the growth rates for computing the initial 1998 stocks. Whenever the growth rates were negative we have used zero. As far as depreciation rates are concerned, we have used the reference rates in the literature: 15% for R&D and 6% for physical capital (see Musgrave 1986; Bischoff and Kokkelenberg 1987; Nadiri and Prucha 1996 for physical capital; Pakes and Schankerman 1986; Hall 2007; Aiello and Cardamone 2008 for knowledge capital). For obvious reasons, the literature assumes the obsolescence of knowledge capital to be faster than that of physical capital.

  12. This methodology is based on the within group estimator, but corrected for its asymptotic bias (see Kiviet 1995, 1999; Bun and Kiviet 2003). The procedure must be initialized by a dynamic panel data estimate and we have opted for the less demanding GMM-DIF. Robust standard errors have been obtained through bootstrapping, with 50 iterations.

  13. Interestingly enough, the negative role of wages in affecting employment seems to be limited to the low-tech sectors, where competition is mainly based on cost-saving rather than on innovation.

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Acknowledgements

We would like to thank two anonymous referees for their detailed comments and useful suggestions.

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  1. Università Cattolica del Sacro Cuore, Piacenza, Italy

    Mariacristina Piva

  2. Università Cattolica del Sacro Cuore, Milan, Italy

    Marco Vivarelli

  3. UNU-MERIT, Maastricht, The Netherlands

    Marco Vivarelli

  4. IZA, Bonn, Germany

    Marco Vivarelli

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  1. Mariacristina Piva
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Piva, M., Vivarelli, M. Technological change and employment: is Europe ready for the challenge?. Eurasian Bus Rev 8, 13–32 (2018). https://doi.org/10.1007/s40821-017-0100-x

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