Employment impacts of market novelty sales: evidence for nine European Countries

This study investigates the impact of new market product (market novelty) sales on labor demand (employment). Based on a two-output cost function (market novelties and existing products) a relative employment equation is derived with the ratio of labor to material inputs as dependent variables. The relative labor demand model is estimated using biennial data for 25 industries, nine European countries and five time periods (2002–2010) or by use of a size-class dataset with broad industry groups. System GMM estimations accounting for endogeneity show that the turnover (sales) of market novelties (in relation to existing products) has a significant impact on relative employment in manufacturing industries. On average, an increase in the relative turnover of new market products by one percentage point is associated with a 1.6% increase in the employment ratio. In contrast, employment in service industries does not benefit from new market products but instead from the intensity with which information and communication technology innovations are used, approximated by the proportion of broadband internet connected employees. When instead the size-class dataset is employed, it becomes clear that market novelties primarily drive employment in small firms.