The effect of innovation on skilled and unskilled workers during bad times

The recent economic crises generated a dramatic reduction of employment, but the role of innovation has barely been analyzed. This study contributes to the literature by analyzing the differentiated effect of product and process innovation on high- and low- skilled employment during bad times. We focus on the case of Spain, a country with one of the largest reductions in employment during the crisis. The main results suggest a positive effect of innovation on employment during bad times, although this effect is remarkably larger for high-skilled than for low-skilled workers. These results hold across industries and are exacerbated in high-tech industries. It is estimated that product and process innovations account for around 13% of the different evolution between high-skilled and low-skilled employment during the crisis. These results implicitly reflect that innovation – especially product innovation – favors a bias towards the demand of high-skilled employment in detriment of low-skilled workers.