Types of innovation and labor demand

Abstract

This thesis examines the effects of R&D investment on employment and labor demand by four types of innovation (new & existing innovation and product & process innovation) with the panel regression analysis of South Korean manufacturing industry (1996~2015). Ranking the top in the world since 2013 on the share of GDP spent on R&D yet suffering from unemployment problems, South Korea provides a great example of how innovation activities affect demand for labor. The empirical analysis contained in this thesis shows that four types of R&D investments are inversely correlated with labor demands at the industry level. In addition, new product R&D investment also shows a negative effect, contrary to some of the previous studies. This result can be ascribed to the decrease in manufacturing employment growth and firms participating innovation. At the firm based group level, small and medium-sized enterprises and large firms which have invested more on new product innovation have increased their demand for labor with new product R&D, while both groups’ process innovation R&D are negatively correlated with labor demand. One of the critical implications of this study is the importance of disaggregating the employment effects of R&D. Since business enterprises’ R&D investments have different effects on employment by types of innovation, policymakers need to consider diverse employment effects of R&D. In particular, more effort is needed to promote existing product and process R&D for job creation, which has been ignored by current industries due to a gap between their perception of R&D capability and actual capacity.