Assessment of the Effect of Technological Innovations on Unemployment in the European Union Countries

Abstract

Innovation and unemployment are two economic elements related to each other that have been constantly analyzed in the economic debates from the beginning of the 21st century. A classical question is whether innovation creates or destroys jobs. The conventional approach contemplates innovation as a transformation instrument of an economy, resulting in economic growth and jobs creation. Another approach points out to various mechanisms which can compensate the primary effect of innovations and cause an ultimate effect of innovations on labour demand to be unclear. In view of the fact that there are many different explanations about the impact of innovations on labour demand, this paper, after the analysis of theoretical and empirical scientific literature in this field, provides an empirical analysis with unemployment as the dependent variable. The authors use data from 28 European Union countries for the period of 1992–2016 and pursue to research how technological innovations affect unemployment rate. There are two core independent variables – expenditure on R&D (research and development) and number of patent applications – as the main proxies for technological innovations. Control variables that affect unemployment are included to the model as well. The model was estimated using a dynamic two-step System Generalized Method of Moments (GMM-SYS) of a panel data system. After the composition of 12 different estimations of the model, the results suggest that, in some cases, technological innovations affect unemployment.