The labour demand and the innovation behaviour of firms - An empirical investigation for West German manufacturing firms

From a theoretical point of view the introduction of process and product innovations has contrary impacts on Labour demand even at the level of the innovating firm. We present an empirical study of the relationship between labour demand and innovation behaviour using the Ifo Business Panel for the West German manufacturing sector in the years 1980-1992. A dynamic labour demand function is estimated by the method of instrumental variables. Our main findings can be summarized as follows: The labour demand at the firm level is mainly affected by wages, user costs of capital and the demand side. The impact of product innovations on employment is significantly positive. Finally, we find no empirical evidence for the often-quoted statement that the introduction of process innovations destroys jobs in the enterprise.