This paper studies the impact of environmental innovation on employment growth using firmlevel data for 16 European countries and the period 2006-2008. It extends the model by Harrison et al (2008) in order to distinguish between employment effects of environmental and non-environmental product as well as process innovation. By looking at country and sector level differences, it also generates new insights into the heterogeneity of the environmental innovation-employment growth link along different dimensions. The results demonstrate that both environmental and non-environmental product innovations are conducive to employment growth in European firms. We estimate a gross employment effect of product innovation for both types of product innovators that is very similar in nearly all countries and sectors. That is, in most cases a one-percent increase in the sales due to new products for environmental product innovators also increases gross employment by one percent. This implies that there is no evidence that environmentally-friendly new products are produced with higher or lower efficiency than old products. Yet, we observe differences in the contribution of environmental and non-environmental product innovation to employment growth across countries or sectors that are the result of differences in the average innovation engagement and innovation success across countries or sectors. The absolute contribution to employment growth is positive for both types of new products. However, we find mixed evidence for the relative importance. In manufacturing the contribution of environmental product innovators was larger than that of non-environmental product innovators in half of the countries. In services, however, non-environmental product innovators matters more for growth in the vast majority of countries. In contrast, environmental and non-environmental process innovation plays only a little role for employment growth.
In manufacturing, average employment growth amounted to 4.5%. General improvements in productivity would have led to a decline in employment of about 6.1%. The contribution of both environmental and non-environmental process innovation to employment growth is negative but of secondary importance when observed quantitatively (-0.04% and -0.2%). These negative impacts on employment have been more than offset by the growth in output (demand) of old and new products. It turns out that the growth in old products was the main contributor to employment growth fostering it by about 7.6%. An additional 3.4% growth originates from the output growth in new products for product innovators. When we disentangle the sources of the latter effect, we find that environmental and non-environmental product innovators have contributed to a similar extent to employment growth via an increase in output for their new products (+4.5% vs. +4.8%). At the same time, product innovators have been faced with a decline in the output of their old products which weakened the positive employment effect by about 6%.
In services, the broad picture looks similar to manufacturing with some interesting distinctive features. As already mentioned in section 5, average employment growth was more than twice as large as in manufacturing (9.6%). However, the contribution of the general productivity trend, process innovation and product innovation was of similar magnitude in this period (-5.5%, 0% and +3.3%). The larger employment growth mainly stems from larger sales growth of old products for non-product innovators. The latter effect stimulated employment growth by nearly 12%. A second difference between manufacturing and services relates to the contribution of product innovations for environmental and non-environmental product innovators. In contrast to manufacturing, we record a much smaller contribution via an output increase in product innovations for environmental (+2.7%) than for non-environmental product innovators (+4.5%). Given the fact that the estimated coefficient is very similar for both groups, the lower contribution is the result of a lower engagement in environmental product innovations and a lower innovation success of environmental product innovators.
Despite its positive impact, product innovations have contributed less to employment growth than old products. The only exceptions are Germany and Portugal (services) where the employment contribution of product innovation exceeds the one of old products. The contribution of output for existing products to employment growth is particularly large in East European countries where we find at the same time large general productivity gains. In isolation these productivity gains would have led to a tremendous downsizing if it had not been compensated for by the growth in demand for existing products and to a lesser extent by the growth in demand for new products. Overall, the numbers reveals a quite large heterogeneity in the general productivity trend across European firms, particularly in East Europe and in services. But even for large Western European countries this effect ranges in manufacturing from -6% in France, -4.4% in Germany to -2.3% in Italy. In some countries, especially in the Baltic area, the effect is even positive indicating that these countries experienced a decline in labor productivity and hoard labor in this period.
By and large there are no sector differences with respect to the relationship between environmental process innovation and employment growth. That is, we find no significant effects of green process innovation in any of the sectors. On the contrary, non-environmental process innovations have reduced labor demand in medium- and low-technology sectors by about 4% in the period 2006-2008. In both sectors it is presumably more likely that process innovations are aimed at reducing costs instead of increasing the quality.
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Working Paper 50; December, 2013