Technological innovations and labour demand in SMEs in Europe Martin Falk Eva Hagsten

Little is known about the determinants of labour demand for SMEs motivation In the EU 97% of firms with 10 and more employees can be categorised as SMEs Little is known about the determinants of labour demand for SMEs Previous studies based on aggregate data: National accounts, OECD stan, EU klems, WIOD => no information by firm size ESSLait Micro Moments Doatabase data contains information by both firm size and industries Studies based on aggregate data are useful for policy makers e. g. Michaels, Natraj and Van Reenen (2014) RESTAT Long time period, Data is easy accessible accounting for persistence, dynamic models contribution: Impact of technological & organisational innovations on labour demand of SMEs using data for 8 EU countries

Previous literature Effects of technological innovations on average employment growth (Harrison et al., 2008; Vivarelli, 2012; and Pianta, 2005). product innovations have a large and positive impact on employment growth process innovations tend to have a small negative impact Direct and indirect effects of product innovations Studies based on manufacturing firms are overrepresented (e.g. Calvo, 2006; Lachenmaier & Rottmann, 2011; Smolny, 1998; and Van Reenen, 1997) ongoing discussion about the impact of technological innovations / R&D along its conditional distribution (Bartelsman et al. 2013; Coad and Rao, 2006, 2008, 2010; Falk, 2012; García-Manjón and Romero-Merino, 2012; Hölzl, 2009; Spithoven, Frantzen and Clarysse 2010; Damijan et al. 2012 Few studies on the effects of organizational change on overall employment growth (Bauer and Bender, 2004; Bellmann 2011; Caroli and Van Reenen, 2001; Evangelista and Vezzani 2010, ‘12

Labour demand model Key question: Impact of technological innovations on labour demand L=f(Y,W,K) with Y=(YPN, YPO) Labour demand equation: i=1,..,7 countries, j=1,.,5 industries, k=1,..4, size classes, t =2002, 2004, 2006, 2008 and 2010 E: employment WP: real wages deflated by the value added deflator YPN: output due to new market products YPO: output due to not to market products (=old products) PROC, ORG: process, organizational innovations

Labour demand model Skills: share of workers with tertiary degree KP: Capital services in constant prices time effects group effects Separate estimates for SMEs (10-19,20-49,50-249) and large firms (250+) Estimation method: Static fixed effects model Dynamic panel data models

data MMD database Psstat, Isstat, Ecstat, deflators DK, FI, FR, NL, NO, SE, SI and UK Firm size class (10-19, 20-49, 50-250, 250+) Industries consumer manufacturing intermediate manufacturing investment goods, excluding high-tech finance and business services except real estate electrical machinery, post and communication services

data technological and non technological innovations refer to a three-year period Sample: Two years interval data Share of turnover due to new market products introduction of new or significantly improved goods and services (“product innovations”) implementation of a new or significantly improved production process, distribution method, or support activity for goods or services (“process innovations”) Organizational change: new business practices for organising work or procedures, new knowledge management systems and new methods of workplace organisation and/or new methods of organising external relations with other firms

Descriptive statistics

Descriptive statistics

results two output variables are highly significant short run elasticity of employment with respect to turnover due to new market novelties: 0.11 turnover due to not new market novelties: 0.65 share of turnover due to market products: 7% =>employment effect of new market products is larger than that of old products Long run coefficients turnover due to new market novelties: 0.15 turnover due to not new market novelties: 0.88

results no impact of process and organisational innovations skill intensity is highly significant capital services in constant prices is positive and highly significant employment benefits from capital accumulation. short run and long-run wage elasticities of -1.0 and -1.3 The results for large firms determinants of labour demand differ from those of SMEs

GMM estimates of the labour demand model (10-249 employees) results GMM estimates of the labour demand model (10-249 employees)

GMM estimates of the labour demand model (10-249 employees) results GMM estimates of the labour demand model (10-249 employees) (Output variables are treated as predetermined)

Conclusions MMD database: Estimates of the determinants of labour demand by size class Labour demand of SMEs depends significantly on two types of output, capital and wages Relatively larger employment effects of turnover due to market products Higher employment growth in industries/size classes with a higher skill intensity Structural change towards skill intensive industries No impact of process innovations and organisational change Policy implications: investment in tertiary education Innovation policy (indirect and direct R&D subsidies) Difficult to draw detailed policy implications based on the results