Sectoral Employment Shifts and the Role of R&D: A Cross Country Comparison for Manufacturing and Service

Abstract

In this study we compare the evolution of labour productivity across the majority of EU member countries over the span of 1995-2016. Productivity growth combined with cross-sectoral employment shifts from manufacturing industries towards the service sectors can be observed in all countries. A shift-share analysis suggests that throughout this period most of the labour productivity growth was due to productivity gains within sectors. Labour movements between sectors, on the other hand, had small and often negative impact on labour productivity growth, especially in older EU member countries. Furthermore, the role of sectoral R&D, as one channel affecting productivity and employment is examined. We find considerable heterogeneity across sectors of the correlation between R&D expenditure and employment, but several patterns can be identified. Employment in high-tech sectors both in manufacturing and service exhibits a positive, significant correlation with R&D expenditure, while for low- and medium-tech manufacturing results are predominantly negative but sensitive to dividing the sample into subgroups of countries. There is no significant correlation between R&D expenditure and employment in low-tech service sectors.