Technological Activity and Employment in a Panel of UK Firms
| DOI | http://doi.org/10.1111/1467-9485.00198 |
| Published date | 01 August 2001 |
| Date | 01 August 2001 |
| Author | D. Bosworth,C. Greenhalgh,M. Longland |
{Journals}sjpe/48_3/c159/makeup/c159.3d
TECHNOLOGICAL ACTIVITY AND
EMPLOYMENTINAPANELOFUKFIRMS
C. Greenhalgh,*M. Longland *and D. Bosworth**
ABSTRACT
We investigate the relationship between technological activity, proxied by R&D,
patents, and trade marks, and employment for a panel of British production firms
from 1987 to 1994. We modify standard derived demand for labour to include
technology variables. We find employment is fostered by R&D expenditure and UK
patent publications, ceteris paribus on factor costs and current sales. The
employment impact of R&D is bigger in high technology sectors, but employment
increase from UK patenting activity is bigger in mature technology sectors. In
further analysis of persistent differences (the estimated firm fixed effects) UK
trade marks and US patents are also positively associated with employment.
IT
HE TOPIC FOR ANALYSIS
The application of science and technology to the invention and design of new
products and processes are the twin elements of technological advance, seen
as crucial to the survival and success of firms in advanced industrial countries.
For workers such technological activity is often regarded as a mixed blessing:
improvements in product design and quality and=or production cost reductions
will sustain demand for output, so employment can increase. However, the
adoption of new process technology is frequently labour saving of production
workers and thus job-destroying. At the same time firms which engage in
product innovation will need to employ additional non-production staff to
undertake R&D, and to design, test and market their new products.
Using industry data, Nickell et al. (1998) have argued that for most industrial
sectors the net effect of adopting new techniques will be positive for
employment. An early study by Schott (1978), for British manufacturing during
1948± 70, demonstrated that technical knowledge was complementary with
employment. Empirical analysis of British production also shows there have
been considerable shifts in labour demand by skill (Nickell and Bell, 1995;
Greenhalgh et al., 1998). However, direct evidence that technological activity is
positively job-preserving and job-creating at the level of firms is very scarce.
Scottish Journal of Political Economy,Vol.48,No.3,August2001
#Scottish Economic Society 2001, Published by Blackwell PublishersLtd, 108 Cowley Road, Oxford OX4 1JF, UK and
350 Main Street, Malden, MA 02148, USA
260
*St. Peter's College, Oxford
**Manchester School of Management, UMIST
{Journals}sjpe/48_3/c159/makeup/c159.3d
The survival of particular firms will reflect the `value for money' of the
products they offer and this value has the dimensions both of high quality and
low cost. It should therefore be easier to demonstrate the positive impact of
technology on firm growth and survival than to show this for industry
aggregates which sum up some firms' growth and others' descent. Van Reenen
(1997) investigated the role of commercial innovations and ownership of
intellectual property on UK firm-level employment, finding a positive role for
innovations but no impact of patents. Two weaknesses of Van Reenen's data set
are that the innovation survey finished in 1983, restricting the analysis to 1977±
82, and the measurement of intellectual property owned by the firms is confined
to patents taken out in the US.
In this paper we present new estimates of firm-level employment effects of
technological activity. We begin by estimating an employment function for a
panel of UK firms, based on the standard theory of the derived demand for
labour. We then introduce direct measures of the firm's technological activity to
gauge their effects on employment by these firms. First, we examine the impact
of undertaking R&D in the firm, to investigate whether this directly increases
the labour intensity of the firm's total activity. Second, we introduce measures
of intellectual property and other intangible assets (using measures of UK,
European and US patents, and UK trade marks) and investigate the impact of
such intangible assets (separately and in conjunction with R&D) on employ-
ment.
II MODELLING THE FIRM'SDEMAND FOR LABOUR
We assume that production of the firm's current product range takes place
within the possibilities set by a standard flexible neoclassical production
function for gross output. The typical firm is always adjusting towards using
best-practice production technologies, which may offer opportunities for factor
and material input substitutions in response to changes in factor costs.
Simultaneously the firm may be engaged in its own activities of product and
technical development, undertaking R&D in order to achieve quality-enhancing
and market-expanding product innovations and to develop cost-reducing
process innovations. If so it will employ extra staff for these parallel activities,
including market research and product launch.
The derived demand for any factor of production depends on the firm's
expectations regarding future sales (which determine target output), the price of
the factor, and the prices of alternative substitute and complementary factors,
which determine the combinations of factors employed (Hamermesh, 1993).
This is therefore our basic model specification. We adopt a general functional
form for the derived labour demand equation allowing for multiplicative
interaction of these variables. We then estimate the logarithmic transformation,
which conveniently yields direct estimates of the elasticities of labour demand
with respect to explanatory variables such as sales and factor costs.
Following the neoclassical model set out by Nadiri and Rosen (1969) we
assume that the firm is cost minimising in the use of its inputs for the production
TECHNOLOGICAL ACTIVITY & EMPLOYMENT IN UK FIRMS 261
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