Innovation, Firm Size, Technology Intensity, and Employment Generation in Uruguay: The Microeconometric Evidence

Oct 2011
The aim of this paper is to analyze the relationship between innovation and employment, in terms of both its quantity and quality, in Uruguay. The effect of product and process innovation on employment growth and on employment composition in terms of skills was studied, using data from manufacturing firms' innovation surveys, matched against economic activity surveys. The impact of different innovation strategies was also analyzed, particularly producing technology vs. sourcing technology externally. The results revealed that product innovation is associated with employment growth. There is (weaker) evidence that process innovation displaces labor. Product innovation is not more complementary to skilled than to unskilled labor. Producing technology in-house has the biggest positive impact on employment, followed by the make-and-buy strategy. Similar results are found for small firms and firms belonging to the low- and high-tech sectors. Interviews carried out with innovation agents support the view that in general innovation does not lead to job losses and that it generates greater demand for a more qualified labor force.