The effect of technological innovation on age-specific labour demand

Abstract

This research examines the relationship between technological innovation and age-specific labour demand at firm level. The research supports the hypothesis of age-biased technological innovation. A combined panel data set of Estonian firms is used in the study that merges three different data sets – Community Innovation Survey, Business Registry data, Estonian Tax and Customs Office data – consisting of 5,785 unique firms over the period of 2006–2016. This paper uses a constant elasticity of substitution production function to derive a labour demand equation for perfectly competitive firms and the System GMM approach to analyse a panel data set. The results are in accordance with the theoretical expectations that there is a significant positive impact of technological innovation on total employment at firm level and a negative relationship between innovation and the employment of older employees. However, the latter finding is the case only in low-tech firms. Moreover, adding organizational innovation to our estimation equations increased the coefficients of product innovation slightly; however, all estimations show that both product and process innovations do not have an age-specific impact on labour demand in the long run.