Complementarities between product and process innovation and their effects on employment: a firm-level analysis of manufacturing firms in Colombia

Figures & data

Table 1. Effects of innovation and efficiency on firm-level employment.

Innovation	Displacement of workers	Compensation effect
Product Innovation	Productivity differences of the new product (- or +). Theory gives no general indication of this.	Demand enlargement (+): The development of new or significantly improved goods has a positive impact on employment. Managerial ability to identify and develop products and organize production activity. Better use of resources can increase a firm’s growth (+).
Process Innovations	Productivity effect (-): Productivity increases imply a reduction in unit cost. less labour for a given output However, firms that can survive with low levels of productivity growth may not affect employment^.c	Price effect (+): cost reduction passed on to price (in a competitive market). Lower prices increase demand and therefore output and employment. The extent of the effect will depend on the competitive conditions the firms face.
Complementarity of Product and process innovation		New products increase employment (+)
Production efficiencies	Firms operating beneath the production frontier may increase their output without requiring more input or producing the same level of output using less input (+ neutral or -)	past improvements in efficiency may have a positive effect on future^a employment^b
Trend^a	Productivity effect (-)

^aProductivity improvement in the production of existing products due to diffusion of past industry innovations, and learning.

^bRefers to simultaneous process and product innovation.

^cFirms that introduce only process innovations may decrease costs for old products or comply with regulations.

Table 2. Employment growth and innovation.

	2008	2010	2012	2014	2016	All years
Number of firms	7,683	8,643	9,137	9,054	7,947	42,464
Innovators(%)	37.8%	34.4%	21.7%	19.3%	21.7%	26.7%
-Process innovator	9.9%	17.3%	10.0%	9.3%	10.2%	11.4%
-Product innovator	11.8%	5.1%	5.0%	4.4%	4.1%	6.0%
-Process and Product innovator	16.2%	11.9%	6.7%	5.6%	7.3%	9.4%
Non-innovators	62.2%	65.7%	78.3%	80.7%	78.3%	73.3%
Employment growth (%)
All firms	5.3%	1.9%	2.0%	1.7%	0.8%	2.3%
Innovators(%)	12.0%	5.9%	6.5%	6.9%	5.6%	7.7%
-Process innovator	3.3%	5.2%	5.6%	7.2%	4.5%	5.2%
-Product innovator	27.8%	4.8%	8.0%	5.3%	1.1%	13.2%
-Process and Product innovator	5.8%	7.3%	6.8%	7.6%	9.6%	7.1%
Non-innovators	1.2%	-0.2%	0.8%	0.5%	-0.5%	0.3%
Average employment
All firms	90	85	85	90	103	90
Innovators	154	151	203	229	233	185
-Process innovator	105	110	146	171	152	134
-Product innovator	128	158	170	203	185	160
-Process and Product innovator	202	209	313	347	374	264
Non-innovators	52	50	52	56	67	56

Table 3. Share of turnover from new products (average).

	2008	2010	2012	2014	2016	All years
Share of turnover from new products	12.8%	8.3%	5.3%	4.0%	5.0%	8.3%

Figure 1. Share of sales of new products and employment growth (average) by industry.

Table 4. Employment, efficiency, and innovation.

$l_i-g_{1\mathit{i}}={\alpha }_0+{\alpha }_1\mathit{f}+{\alpha }_2{d}_2+\left(B_0+B_1{d}_2\right)g_{2\mathit{i}}+\mathit{trend}+{\mu }_i$
	(1)		(2)
	Robust		Bootstrap
growth_newF($g_2$)	2.521+	(1.467)	2.521+	(1.546)
Efficiency ($\mathit{f}$)	−2.109***	(0.516)	−2.109***	(0.559)
Proc_Product ($d_2$)	0.114+	(0.0667)	0.114*	(0.0780)
proc_prodXsaleNew ($d_2\ast g_2$)	−2.351	(1.581)	−2.351	(1.448)
trend	0.0330*	(0.0136)	0.0330*	(0.0155)
_cons	0.255*	(0.108)	0.255*	(0.121)
N	4551		4551

Standard errors in parentheses.

+ p < 0.10, *p < 0.05, **p < 0.01, ***p < 0.001.

Robust specification: (1) Robust standard errors in parentheses.

Bootstrap specification: (2) bootstrap standard errors in parentheses (1000 reps).

L1= employment growth rate less real sales growth.

g₂= rate of sales growth for new products.

f= efficiency variable.

d₂= dummy variable for simultaneously process and product innovation.

d₂*g₂= is a variable interacting sales growth for new products with simultaneous process & product innovation.

Instruments: Cooperative agreements for innovation(iSNCTI).

Increased range of products and Research and Development.

Figure 2. Efficiency by sub-sector of the manufacturing sector.

10 The boxplot shows: the median (middle line inside each box), the 25th and 75th quartiles are represented by the bottom and top of each box, the height of the box is the inter-quartile range, the upper and lower adjacent values depict the spread of the distribution outside the inter-quartile range.

Table 5. Dynamics of efficiency: lag, present and forward.

	(Lag_eff)		(Eff present)		(Fwd_eff)
	L1		L1		L1
growth_newF($g_2$)	2.223+	(1.176)	2.521+	(1.467)	1.612	(1.313)
eff_1	2.075***	(0.452)
Proc_Product ($d_2$)	0.115*	(0.0581)	0.114+	(0.0667)	0.0863	(0.0658)
proc_prodXsaleNew	−1.675	(1.161)	−2.129	(1.465)	−1.181	(1.302)
trend	0.0114	(0.00968)	0.0330*	(0.0136)	0.0229	(0.0177)
Efficiency ($\mathit{f}$)			−2.109***	(0.516)
Fwd_eff					2.037**	(0.627)
_cons	−1.575**	(0.139)	−0.255*	(0.108)	−0.586**	(0.194)
N	3983		4551		3343

Robust standard errors in parentheses.

+ p < 0.10, *p < 0.05, **p < 0.01, ***p < 0.001.

L1= employment growth rate less real sales growth.

g₂= rate of sales growth for new products.

f= efficiency variable.

d₂= dummy variable for simultaneously process and product innovation.

d₂*g₂= is a variable interacting sales growth for new products with simultaneous process & product innovation.

Instruments for growth_newF: Increased range of products(i2r2c1_) Increased market share(i2r4c1_)

R&D(r_d) and Cooperation agreements(iSNCTI)

1. Lag_eff= model that includes the lag of efficiency

2. eff= model that includes the efficiency in the current period

3. Fwd_eff= model that includes the efficiency in t + 1

Lag_eff= model that includes the lag of efficiency

eff= model that includes the efficiency in the current period

Fwd_eff= model that includes the efficiency in t + 1

Table A1 Time decay frontier model

Ln y	Coef	Std. Err.
lny_l	0.0179***	0.0014
lnC	-0.3049***	0.0220
lnL	1.1543***	0.0261
lnlbruta	0.0222*	0.0096
lnCL	-0.0889***	0.0024
lnCibr	-0.0028**	0.0009
lnLibr	0.0041**	0.0013
lnL2	0.1017***	0.0045
lnC2	0.0930***	0.0020
lnlbr2	0.0015*	0.0007
_period…2010	0.0300***	0.0053
_period…2012	0.0910***	0.0067
_period…2014	0.1275***	0.0087
_period…2016	0.1852***	0.0111
consta.nt	10.5832***	0.1691
µ	1.5805	0.0966
η	-0.1042	0.0011
$ln\left({\sigma }_s^2\right)={\sigma }_{\mu }^2+{\sigma }_{\upsilon }^2$	-2.1097	0.0129
/ilgtgamma	0.4667	0.0262
${\sigma }_s^2$	0.1212	0.0015
$\mathit{\gamma }{=}_{{\sigma }_s^2}^{{\sigma }_{\mu }^2}$	0.6146	0.0062
${\sigma }_{\mu }^2$	0.07453	0.0015
${\sigma }_{\upsilon }^2$	0.0467	0.0005