R&D expenditure and employment in other non-manufacturing sectors 30

in the panel, 34.8% of workers were employed in one of those sectors. For the group of EU15 countries employment in the low-tech service sectors was on average 36.2% compared to 32.2% for the newer EU member countries. The regression results are displayed in table 1.23 in Appendix D and table 1.9 shows a summary. With respect to the correlation between R&D expenditure and sectoral employment we find predominantly that the coefficient of R&D is not significant. The only exception is “Accommodation and food service activities”, but the significance of the result drops in the specification with full-time equivalent employment.

Overall, we find that for the majority of business service sectors, for which we establish significant correlation between R&D and employment, the corresponding coefficient is pos-itive. However, for most of the business service sectors, the correlation is not statistically significant. In terms of differences between the two country groups in our panel, we find that for the high-tech service sectors there are no qualitative differences of the direction of the rela-tionship between R&D expenditure and employment. Considering the medium-tech services, we find a negative but insignificant association between R&D expenditure and employment in Professional, scientific and technical activities, except scientific research and development for the newer EU member countries (result not shown here but available upon request). This implies that the overall result displayed in table 1.22 is driven by the EU15 countries. As for the low-tech service sectors, in five out of the seven, the sign and significance of the coefficient of R&D coincides between the two groups. Exception is “Financial and insurance activities”, but the result is not significant in all cases. Also, for “Accommodation and food service activities” the significance of the result with respect to total employment is due to the EU15 countries where for the rest of the countries in the panel the R&D coefficient is negative and insignificant.

1.4.3 R&D expenditure and employment in other non-manufacturing

Table 1.10: Other non-manufacturing sectors and innovation

Sector+Code R&D^a N^b Countries R^2c

Other non-manufacturing sectors Dependent variable: Total employment

Agriculture, forestry and fishing −0.026^∗ 260 21 0.701

ISIC 01-03 (0.011)

Mining and quarrying 0.011 235 19 0.455

ISIC 05-09 (0.016)

Electricity, gas and water supply; sewerage, waste 0.025^∗∗∗ 247 20 0.278 management and remediation activities: ISIC 35-39 (0.004)

Construction −0.030^∗ 263 21 0.347

ISIC 41-43 (0.014)

Dependent variable: Full time equivalent employment

Agriculture, forestry and fishing −0.042^∗∗ 260 21 0.708

ISIC 01-03 (0.011)

Mining and quarrying 0.003 235 19 0.465

ISIC 05-09 (0.017)

Electricity, gas and water supply; sewerage, waste 0.025^∗∗∗ 247 20 0.233 management and remediation activities: ISIC 35-39 (0.005)

Construction −0.042^∗∗ 263 21 0.377

ISIC 41-43 (0.014)

aFirst Lag

bNumber of observations

c WithinR²

Note: Dependent variables are in natural log. Fixed-effects (within) regression with Driscoll and Kraay standard errors. Standard errors in parenthesis. The full regressions are displayed in tables 1.24 in Appendix D.* p<0.05, ** p<0.01, *** p<0.001.

countries and countries that have joined the EU during or after the 2004 enlargement. As a first step, consistent with the literature, we have documented a clear and persistent movement of employment from manufacturing to service sectors in all EU countries. Second, we have shown that this shift of employment corresponds to a movement from sectors with higher and faster growing productivity to such with smaller and slower growing productivity. This holds particularly true for old EU member countries, whereas for new member countries some movement towards more productive sectors could be observed. Finally, we have shown that there is a negative correlation between the manufacturing share in employment and the gross domestic expenditure on R&D. The result is robust if R&D expenditure is instead measure by business R&D expenditure or by business R&D expenditure in manufacturing.

It is also robust with respect to using a different lag structure. Higher GDP per capita is also associated with lower share of employment in the manufacturing sectors while higher GDP growth is related to higher manufacturing share of employment. On the other hand, our estimations suggest no significant effects of growth in unit labour cost or strictness of employment protection on the manufacturing employment share. Trade openness is also negatively correlated with the manufacturing employment share, although its coefficients is not always statistically significant.

In terms of absolute employment (rather than employment share) we find that for most high-tech manufacturing and service sectors an increase in R&D is associated with higher em-ployment. The relationship is, however, reversed for most middle to low-tech manufacturing sectors. Moreover, splitting the sample into two groups—EU15 and EU15+ countries—reveals that for some sectors there are qualitative differences with respect to the relation of R&D

and sectoral employment in the two groups. On the other hand, we find no significant rela-tionship between employment in low-tech business service sectors and R&D expenditure in those sectors while the results with respect to the medium-tech service sectors are mixed. A significant determinant of sectoral employment, across most specifications is GDP per capita, while GDP growth is significantly related with employment mostly for manufacturing indus-tries. Further, growth in hourly wages is significantly, negative correlated with employment in all high- and medium-tech business service sectors. For the low-tech business services the coefficient of wage growth is significant in two out of the seven considered sectors. For majority of manufacturing industries, however, changes in labour cost are not significantly correlated with employment. Whenever, the coefficient of trade openness is significant in low- and medium-tech manufacturing sectors, it is negative. However, there are qualitative difference between the two country groups in the panel for some manufacturing sector with respect to this variable. On the other hand, in high-tech manufacturing the results for trade openness and its correlation with employment are mixed.