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Handbook of Labor, Human Resources and Population Economics pp 1–14Cite as

Innovation, Employment, and the Business Cycle

Abstract

Changing economic conditions over the business cycle shape the innovation behavior of firms, which, in turn, affect their ability to generate jobs from new products and processes. Credit constraints, the opportunity cost of investing in innovation, and changing appropriability and demand conditions have been identified in the literature as factors that explain shifts in innovation behavior of firms over the business cycle. Altogether, firms behave pro-cyclical: the majority of firms expand R&D and innovation activities faster in periods of prosperity than in recessions when some firms even reduce these activities. Exceptions, however, are frequent, in particular among fast-growing new firms and highly innovative enterprises.

In contrast to innovation input and output, the elasticity of employment growth with respect to innovation over the business cycle is not well researched yet. The few existing studies suggest that the ability to create employment from product innovation is pro-cyclical as well. This seems a promising field for future analyses.

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Authors and Affiliations

  1. AIT Austrian Institute of Technology, Center for Innovation Systems and Policy, Vienna, Austria

    Bernhard Dachs

  2. ZEW – Leibniz Centre for European Economic Research, Mannheim, Germany

    Martin Hud

  3. ZEW – Leibniz Centre for European Economic Research, MaCCI and University of Luxembourg, Mannheim, Germany

    Bettina Peters

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  1. Bernhard Dachs
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  2. Martin Hud
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Correspondence to Bernhard Dachs .

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  1. UNU-MERIT & Princeton University, Maastricht, The Netherlands

    Prof. Dr. Klaus F. Zimmermann

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  1. Department of Economic Policy, Università Cattolica del Sacro Cuore, Milano, Italy

    Marco Vivarelli

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Dachs, B., Hud, M., Peters, B. (2020). Innovation, Employment, and the Business Cycle. In: Zimmermann, K. (eds) Handbook of Labor, Human Resources and Population Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-57365-6_4-1

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  • DOI: https://doi.org/10.1007/978-3-319-57365-6_4-1

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