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There is a growing narrative that technology kills jobs. This stokes fears of technology and automation. Yet a new study suggests these fears are wrong.
A new paper from the Center for European Economic Research finds that innovation leads to more jobs, not fewer. Economists Bernhard Dachs, Martin Hud, Christian Koehler, and Bettina Peters find that from 1998 to 2010 and across the European Union, a one percent increase in sales from new products increases gross employment by one percent. Furthermore, this finding appears consistent economy-wide and across almost all industries. In other words, irrespective of industry, when companies develop and sell new innovative products, their revenues grow, and as their revenues grow, they expand operations to employ more workers.
This innovation-led employment growth effect is especially pronounced in high-tech manufacturing and knowledge-intensive service sectors. Over this period, innovation generated a net 3.8 percent increase in employment in high-tech manufacturing sectors, as compared to 3 percent in low-tech manufacturing sectors. Meanwhile, employment in knowledge-intensive service industries grew by 10.1 percent because of innovation while low-knowledge-intensive service industries grew by 7.5 percent.
Examples of high-tech manufacturing industries include pharmaceuticals, computers and electronics production, while knowledge-intensive service industries include financial services, computer programing, and research and development services. On the other end of the spectrum, low-tech manufacturing sectors includes furniture manufacturing, and low-knowledge-intensive services include landscaping.
The story with process innovation (where firms adopt better technologies to produce goods and services at lower cost) is more mixed. In high-tech manufacturing industries, revenue from the sales of innovative new products increased employment by a 6.1 percent while innovative process technologies decreased employment by 1 percent. Firm reorganization (adopting industry-best operating practices) actually played a slightly larger role, reducing employment by 1.4 percent. However, taken in its entirety, the numbers show that innovation drives employment growth rather than destroys jobs. And at the same time, it boosts standards of living and lowers prices.
Product and process innovation go together; policymakers should not expect firms to develop affordable innovative products all while not using the most efficient production mix of technology and manpower. Instead of only focusing on job displacement from new technologies, policymakers and pundits should embrace the far larger job creation effects that innovation brings about.