This paper investigates the implications of innovation on employment at the firm and industry levels using Estonian data. The paper contributes to the pertinent literature in two respects. First, in contrast to most other studies, which use data from developed and technologically leading countries, it analyzes data from a catching-up country undergoing rapid economic development. Second, regarding the nature of the data, we propose a novel dynamic estimation strategy based on community innovation surveys (CISs). Our results indicate that innovation positively affects employment growth, resulting from the strong effect of process innovation on employment in medium and low-tech industries. However, at the industry level, the effect on net employment vanishes.
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