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This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.

This paper compares the role innovation plays in productivity across the four European countries France, Germany, Spain and the UK using firm-level data from the internationally harmonized Community Innovation Surveys (CIS3). Despite a considerable number of national firm-level studies analysing this relationship, crosscountry comparisons using micro data are still rare. We apply a structural model that describes the link between R&D expenditure, innovation output and productivity (CDM model). Our econometric results suggest that overall the systems driving innovation and productivity are remarkably similar across these four countries, although we also find interesting differences, particularly in the variation in productivity that is associated with more or less innovative activities.

Vivarelli, and participants at the NBER Productivity Seminars and at the workshop "Drivers and Impacts of Corporate R&D in SMEs" held in Seville at ITPS. The views expressed herein are those of the authors and do not necessarily reflect the views of the Bank of Italy or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

This paper analyzes the relationship between output, employment, and physical and R&D capital, for a sample of 133 large U.S.firms covering the years 1966 through 1977. In the cross sectional dimension, there is a strong relationship between firm productivity and the level of its R&D investments. In the time dimension, using deviations from firm means as observations and unconstrained estimation, this relationship comes close to vanishing. This may be due, in part, to the increase in collinearity between trend, physical capital, and R&D capital in the within dimension, leaving little independent variability there. When the coefficients of the first two variables are constrained to reasonable values, the R&D coefficient is both sizeable and significant. The possibility of simultaneity between output and employment decisions in the short run is also investigated. Allowing for this via the use of a semi-reduced form equations system yields rather high estimates of the importance of R&D capital relative to physical capital. Our data do not allow us, however, to answer any detailed questions about the lag structure of the effects of R&D on productivity. These effects are apparently highly variable, both in timing and magnitude.

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