(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
Recessions—periods of sustained negative economic growth—are inevitable in any economy. But economies more focused on innovation are better able to weather these slowdowns than less innovative economies. Four European economists determined the impact that innovative firms have on an economy during recessions and booms by analyzing firm data across 26 European countries from 1998 to 2010.
They found that, on average, product innovators—firms that release new goods and services into the market—increased their employment by 8.5 percent during recessions (versus 12 percent during booms). This has a buoying effect that counteracts some of the more widespread drag in the economy that occurs as overall demand flags and firms producing out-of-date goods and services reduce their employment.