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

2. 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

3. 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

4. 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

5. 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

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

7. 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

8. Descriptive statistics

9. Descriptive statistics

10. 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

11. 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

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

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

14. 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