Technological Innovation Pattern, Labor Skill Structure and Job Creation: Evidence from China

Chen ZHU   Zhiyi QIU

(Institute of Finance and Economics, Shanghai University of Finance and Economics, Shanghai 200439)

Abstract: Studies on the effect of technological innovation upon job creation are in paradox. The paper is aimed to shed a light on this issue with the heterogeneity of labor into account and to discuss the high-tech biased innovation policy in China in terms of employment impact. According to Schumpeter’s theory and Pavitt’s taxonomy, we pide the technological innovative activity into two patterns: product and process innovation. We theorize that firm’s demand for labor varies with the choice of innovation pattern and that labor skill structure exerts moderating effect. We construct computable measures of innovation and compile data from World Bank’s survey on China’s manufacturing firms in 2012, involving the three-year performance of over 2700 private firms and 148 state-owned enterprises located in 25 provinces. The paper tests the causality between innovation and job creation. Specifically, we find that process innovation has a significantly positive impact upon job creation and it increases firm’s demand for both better educated and unskilled labor. Moreover, high-tech firms with skill-biased labor structure alleviate the positive effect of innovation on job creation. And no reciprocal complementarity between product and process innovation is identified. Thus, the paper suggests that, compared to the highly knowledge-intensive sector, low-tech firms requiring less skilled labor create more jobs through process innovation, which implies new solution to the problem of structural unemployment in China.

Keywords: Innovation pattern; Job creation; Labor skill structure; Moderating effect; Generalized propensity score matching