“The Impact of Technological and Organizational Innovations on Employment in European Firms” by Rinaldo Evangelista, Article Critique Example

Introduction

This critique will look at the journal article “The impact of technological and organizational innovations on employment in European firms” written by Rinaldo Evangelista and Antonio Vezzani. The article deals with the issue of technological and organizational innovation on employment in European firms. The article uses firm-level data from a number of EU countries to understand how both technology and organizational innovations influence employment. The article found that they have a positive impact on employment, although through “indirect” means. The strength of the “indirect” effect varied across different firms. Overall, I found the article to be a compelling examination of the potential association between the two concepts.

Summary

This article takes on a traditionally contentious topic in the discipline of economics: the impact of changes in innovation on employment. Although conceptually the ideas at work are fairly straight forward, economists have had a difficult time in the summation of the total effects and the measuring of those effects. In order to abstract away from more difficult analytical tasks, economists have tried to focus on more tractable research questions that look at the putative relationship in specific industries, markets, and different areas of the work force.

This article places its analytical effort firmly in the inductive analytical tradition: the authors look at firm-level data in an effort to trace the potential impact of “innovation” on employment level. The article tries to measure these effects through both “direct” and “indirect” effects- the distinction being direct effects are those produced by the introduction of labor-saving processes while indirect refers to the benefits that accrue from labor-augmenting practices.

The article then goes to use the Community Innovation Survey (CIS), a firm-level data survey, to explore the impact of innovation on employment in different firms throughout the European Union.

Critique

There are two notable issues with the authors’ methodology. The first critique is that the study is cross-sectional and has a less than optimal operationalization of innovation and its impact on firms’ employment level. By all estimates, innovation is not only a difficult phenomenon to measure; in addition, it takes substantial time for innovation not only to manifest, but also to have a palpable impact on a firm’s employment situation. Thus, in order for this study to truly measure the long-term impact of innovation, and mitigate the likelihood of confounding by other operational variables, a longitudinal data set would be more optimal than a mere cross sectional examination of the identified variables that might not captured the expected effects.

Another problem in the survey is the operationalization of innovation. The authors make a substantive point that the study is not only interested in direct technological innovation, but harder-to-measure “organizational innovations” that are introduced to the organization and may improve firm performance. While the authors are enthusiastic about the potential influence of this innovation, however, the CIS survey employed does not seem well suited to measure this. In particular, a lot of the measures are self-reported and there is no way to assess the significance or quality of the innovations used at the firm-level, except for the fact that management has introduced some type of “innovation.” While this may be ok for understanding frequentist measures of how many firms are introducing what types of measures, it probably does not give an accurate picture (with the inclusion of dummy variables) of the innovation level present in firms.

Although the authors face a number of difficult challenges in proving their hypothesis, they do an admirable job of using econometric specifications to deal with them. For example, the authors note the problem in using a cross-sectional data set to measure the lag impact of a firm’s innovation policies on employment outcomes. Instead of purporting a robust causal relationship, the authors assert a descriptive relationship between exploring whether innovating firms have a higher rate of growth than non-innovating firms, and if those rates are associated with higher employment levels. They also acknowledge the potential endogenity problem (more related to economic performance than to employment). These factors together call for a more conservative relationship of any association found in the statistical analysis.

Conclusion

Overall, although there are some problems with the authors’ methodology, they provide a valuable contribution to the literature with this article. Indeed, whereas other researchers have focused on less discrete outcomes related to the increase in innovation, the focus on employment not only is interesting in an economic perspective in the sense that a more innovative economy might lead to a job with more jobs, but also from a policy perspective in understanding the externalities related to promoting innovation.

References:

OECD (2002), Organisational Change and Firm Performance, DSTI/DOC(2002)14. Paris.

OECD (2005), Oslo Manual: Proposed Guidelines for Collecting and Interpreting Technological Innovation Data. 3rd edn. OECD: Paris.

Pianta, M. (2001), ‘Innovation, demand and employment,’ in P. Petit and L. Soete. (eds), Technology and the Future of European Employment. Edward Elgar: Cheltenham, UK.

Pianta, M. (2005), ‘Innovation and employment,’ in J. Fagerberg, D. Mowery and R. Nelson (eds), The Oxford Handbook of Innovation. Oxford University Press: Oxford.

Smolny, W. (1998), ‘Innovations, prices, and employment: a theoretical model and an empirical application for West-German manufacturing firms,’ Journal of Industrial Economics, XLVI(3), 359–381.

Smolny, W. (2002), ‘Employment adjustment at the firm level: a theoretical model and empirical investigation for West German manufacturing firms,’ Labour, 16(4), 65–88.

Stoneman, P. (1983), The Economic Analysis of Technological Change. Oxford University Press: Oxford.

Tether, B. (2005), ‘Do Services Innovate (Differently)?: Insights from the European Innobarometer Survey,’ Industry and Innovation, 12, 153–184.