The Influence of Technological and Non-Technological Innovation on Employment Growth in European Service Firms

This paper investigates the effect of technological and non-technological innovation on employment growth in European service firms. Our analysis is based i) on cross-sectional CIS data from 20 European countries for the period 2006-2008 and ii) on panel data for different service sector groups and industries for the period 1998-2008. Using the employment model proposed by Harrison et al. (2008), we find that product innovation significantly stimulates employment in services. Main differences in the contribution of product innovation to employment growth across countries or industries are a result of differences in the average innovation engagement and innovation success across countries or industries but not of differences in the transformation of a given level of innovation success to employment growth. There is furthermore only weak evidence of employment effects of process innovation and mixed results for organizational innovation in European service firms. For most of the countries we can also reject the hypothesis of complementarity effects between process and organizational innovation.