Innovation in firms and labour market outcomes

Abstract

This chapter explores how innovation in firms (described as product, process, marketing and organizational innovation) is associated with firm performance and labour market outcomes. For this purpose, it first discusses the evidence to date at the aggregate (i.e. country) level – for as broad a set of economies as possible. Then, it focuses on the firm level based on a group of economies for which data from the Business Environment and Enterprise Performance Surveys (BEEPS) and MENA Enterprise Surveys (MENA ES) – surveys of transition and Middle East and North Africa (MENA) economies, respectively – are available.The chapter finds that there are considerable differences between innovative and non‐innovative firms: innovative firms tend to be more productive, create more jobs, employ more skilled workers (meaning that they employ more educated workers and offer more training) and hire more female workers. Yet, in some cases innovation is associated with more intense use of temporary workers (especially in firms that implement product and process innovations). Moreover, it has been found that sectoral differences might play a role. In this regard, considerable job contraction is observed in non‐innovative low‐technology firms in the manufacturing sector, highlighting the high risk of job loss among low‐skilled workers. Regarding sources of innovation, the chapter shows that while R&D engagement is an important determinant of successful innovation, other drivers, including training, public funding and external acquisition of technologies are relevant.On the basis of these findings, the chapter suggests that adequate education, training and social protection policies can play an important role in both fostering innovation and preparing workers (and firms) effectively for the changing job environment. This means that social partners and other stakeholders will be required to participate in reflections on the types of jobs and skills that will be relevant in the future.