Innovation and Employment: a Reinvestigation using Revised Pavitt classes

The relationship between innovation and employment is addressed in this article through a model and empirical test at industry level for eight European countries in 1994–2004. We investigate this relationship for manufacturing and services and propose a Revised Pavitt taxonomy (covering both of them) in order to identify specific patterns of technological change and job creation and loss. The contrasting effects of strategies of technological or cost competitiveness are investigated using innovation variables from CIS2 and CIS3. Together with demand, wages and industry dynamics, they account for changes in employees and hours worked. The diversity in these relations across industries is also explored; when the model is applied to each Revised Pavitt class, different mechanisms of technological change and effects on jobs emerge.