Employment quality, economic performance and wages in Europe. Exploring the virtuous circle

Pianta, Mario and Reljic, Jelena (2021): Employment quality, economic performance and wages in Europe. Exploring the virtuous circle.

Abstract

This paper investigates the existence of a virtuous circle between industries’ employment quality, the ability to introduce new products, increase labour productivity and pay higher wages. We first present descriptive evidence of these trends in Europe. We then develop a simultaneous four-equation model investigating empirically four related variables: first, the rise of non-standard work as a proxy of low employment quality; second, the success of firms in translating their R&D efforts into new products and services; third, labour productivity growth driven by technological activities; fourth, wage increases and the factors supporting their rise. The model is tested empirically for 41 manufacturing and service sectors of six European economies (Germany, France, Italy, Spain, the Netherlands, and the UK) over the period 1996-2016. The findings provide novel evidence of mutually reinforcing relationships, where higher employment quality complements technological activities, leading to more product innovations that increase productivity growth. In turn, the latter allows wage increases that contribute to higher employment quality, resulting in a good jobs-high innovation virtuous circle.

• Item Type: MPRA Paper
• Language: English
• Keywords: Non-standard work, Product Innovation, Labour productivity, Wages, Virtuous circles, European industries
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor Demand; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J50 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing; L - Industrial Organization > L8 - Industry Studies: Services; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O52 - Europe

References

Akerlof, G.A., & Yellen J.L. (1990). The Fair Wage-Effort Hypothesis and Unemployment. The Quarterly Journal of Economics 105(2), 255–283.

Bogliacino, F., & Pianta, M. (2011). Engines of growth. Innovation and productivity in industry groups. Structural Change and Economic Dynamics, 22(1), 41–53.

Bogliacino, F., & Pianta, M. (2013). Profits, R&D, and innovation-a model and a test. Industrial and Corporate Change, 22(3), 649–678.

Bogliacino, F., & Pianta, M. (2016). The Pavitt Taxonomy, Revisited: Patterns of Innovation in Manufacturing and Services. Economia Politica: Journal of Analytical and Institutional Economics, 33(2), 153-180.

Bogliacino, F., Lucchese, M., Nascia, L., & Pianta, M. (2017). Modeling the virtuous circle of innovation. A test on Italian firms. Industrial and Corporate Change, 26(3), 467–484.

Castellani, D., Piva, M., Schubert, T. & Vivarelli, M. (2019). R&D and Productivity in the US and the EU: Sectoral Specificities and Differences in the Crisis. Technological Forecasting and Social Change, 138, 279–291.

Cetrulo, A., Cirillo, V., & Guarascio, D. (2019). Weaker jobs, weaker innovation. Exploring the effects of temporary employment on new products. Applied Economics, 51(59), 6350–6375.

Crepon, B., Duguet, E., & Mairessec, J. (1998). Research, Innovation And Productivity: An Econometric Analysis At The Firm Level. Economics of Innovation and New Technology, 7(2), 115–158.

Dosi, G. (1982). Technological paradigms and technological trajectories. Research Policy, 11(3), 147–162.

Dosi, G., Pavitt,K. & Soete, L.G. (1990) The Economics of Technical Change and International Trade, London: Harvester Wheatsheaf

Dosi, G., Nelson, R. R., & Winter S., eds. (2001). The Nature and Dynamics of Organizational Capabilities. Oxford University Press.

Dosi, G., & Nelson, R. R. (2010). Technical Change and Industrial Dynamics as Evolutionary Processes. In B. H. Hall & N. Rosenberg (Eds.), Handbook of The Economics of Innovation, Vol. 1 (pp. 51–127).

Duhautois, R., Erhel, C., Guergoat-Lariviere, M., Mofakhami, M. Obersneider, M, Postels, D., Anton, J., Muñoz‐de‐Bustillo, R., Pinto, F. (2018). The employment and job quality effects of innovation in France, Germany and Spain: evidence from firm‐level data, In QuInnE Working Paper No. 7

Grande, R., Muñoz de Bustillo, R., Fernández Macías, E., & Antón, J. I. (2020). Innovation and job quality. A firm-level exploration. Structural Change and Economic Dynamics, 54, 130–142.

Green, A., & Livanos, I. (2017). Involuntary Non-Standard Employment in Europe. European Urban and Regional Studies, 24(2): 175-192.

Griliches, Z. (1979). Issues in Assessing the Contribution of Research and Development to Productivity Growth. The Bell Journal of Economics, 10(1), 92.

Hall, B. H. (2011). Innovation and productivity. Nordic Economic Policy Review, 2, 167–204.

Hipp, L., Bernhardt, J., & Allmendinger, J. (2015). Institutions and the prevalence of nonstandard employment. Socio-Economic Review, 13(2), 351–377.

Kalleberg, A.L. (2011). Good jobs, bad jobs: The rise of polarized and precarious employment systems in the United States, 1970s-2000s. New York: Russell Sage Foundation.

Kleinknecht, A. (2020). The (negative) impact of supply-side labour market reforms on productivity: an overview of the evidence1. Cambridge Journal of Economics, 44(2), 445–464.

Kleinknecht, A., Van Schaik, F. N., & Zhou, H. (2014). Is flexible labour good for innovation? Evidence from firm-level data. Cambridge Journal of Economics, 38, 1207–1219.

Krueger, A. B., & Summers, L. H. (1988). Efficiency Wages and the Inter-Industry Wage Structure. Econometrica, 56(2), 259-293.

Lisi, D., & Malo, M. A. (2017). The impact of temporary employment on productivity. Journal for Labour Market Research, 50(1), 91–112.

Lucidi, F., & Kleinknecht, A. (2009). Little innovation, many jobs: An econometric analysis of the Italian labour productivity crisis. Cambridge Journal of Economics, 34(3), 525–546.

Lundvall, B.Å. (2016). The Learning Economy and the Economics of Hope. London: Anthem Press.

Malerba, F. (2005). Sectoral systems of innovation: a framework for linking innovation to the knowledge base, structure and dynamics of sectors. Economics of Innovation and New Technology, 14(1–2), 63–82.

Malgarini, M., Mancini, M., & Pacelli, L. (2013). Temporary hires and innovative investments. Applied Economics, 45(17), 2361–2370.

Michie, J. (2003). Labour market deregulation, “flexibility” and innovation. Cambridge Journal of Economics, 27(1), 123–143.

Mohnen, P., & Hall, B. H. (2013). Innovation and Productivity: An Update. Eurasian Business Review, 3(1), 47–65.

Nelson, R., & Winter, S. (1982). An Evolutionary Theory of Economic Change. Cambridge: Harvard University Press.

OECD. (2015). Non-Standard Work, Job Polarisation and Inequality. In OECD (ed) In It Together: Why Less Inequality Benefits All, 135–208. Paris: OECD Publishing.

Ortega, B., & Marchante, A. J. (2010). Temporary contracts and labour productivity in Spain: A sectoral analysis. Journal of Productivity Analysis, 34(3), 199–212.

Pavitt, K. (1984). Sectoral patterns of technical change: Towards a taxonomy and a theory. Research Policy, 13(6), 343–373.

Pianta, M. (2001). Innovation, Demand and Employment. In Petit, P., & Soete, L. (eds) Technology and the future of European Employment, 142-165. Cheltenham: Elgar.

Pianta, M. (2017). Innovation and Economic Change. Economics of Innovation and New Technology 26 (8). Taylor & Francis: 683–688.

Pianta, M., Coveri, A., & Reljic, J. (2021). The Sectoral Innovation Database, 1994-2016. Methodological Notes, Working Paper WP-EMS no. 2021/01, University of Urbino.

Raymond, W., Mairesse, J., Mohnen, P., & Palm, F. (2015). Dynamic models of R & D, innovation and productivity: Panel data evidence for Dutch and French manufacturing. European Economic Review, 78, 285–306.

Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy. New York: Harper.

Shapiro, C. & Stiglitz, J. (1984). Equilibrium Unemployment as a Worker Discipline Device. American Economic Review, vol. 74(3), pages 433-444, June.

Sterlacchini, A., & Venturini, F. (2013). Boosting manufacturing productivity through R&D: International comparisons with special focus on Italy. Journal of Industry, Competition and Trade, 13, 187–208.

Syverson, C. (2011). What determines productivity. Journal of Economic Literature, 49(2), 326–365.

Thaler, R. H. (1989). Anomalies: Interindustry Wage Differentials. Journal of Economic Perspectives, 3(2), 181–193.

Ugur, M., & Vivarelli, M. (2021). Innovation, Firm Survival and Productivity: The State of the Art. Economics of Innovation and New Technology, 30(5), 433–467.

Van Reenen, J. (1996). The Creation and Capture of Rents: Wages and Innovation in a Panel of U.K. Companies. Quarterly Journal of Economics, 111(1), 195–226.

Wooldridge, J.M. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge: MIT Press.