The effect of innovation on unemployment and its evolution - A mixed methods analysis investigating the evolutionary relationship between regional innovation and labour markets within the European Union

Abstract

Evolutionary economic geographic literature seeks to place the concept of innovation within a path-dependent context where the complexity and relatedness of activities and knowledge regionally determine a region’s probability of successfully specializing in a new activity. As the spatial fragmentation of innovation increases, research needs to investigate how innovation will affect society. This research seeks to apply the evolutionary perspective of innovation on its effect on regional labour markets. Doing so provides knowledge for policymakers, employers, and employees to deal with challenges and opportunities on the labour market. Scientifically this research further substantiates the legitimacy of this evolutionary perspective whilst combining it with more traditional economic research on labour markets. Through an evolutionary revisitation of Okun’s Law which states that cyclical economic growth is related to labour market developments; this research investigates the relationship between regional innovation and unemployment and its evolution. It does so for the NUTS-2 regions of the European Union and the EEA between 2015 and 2019. Building on data of the European Commission, a quantitative analysis finds that regional innovation and human capital negatively affect unemployment and its evolution. At the same time, regional innovation and human capital also seem to decrease inequality on regional labour markets regarding unemployment. Three case studies have been drafted to investigate what determinants shape these dynamics. The key takeaway of these case studies is that regional context, local capabilities, geography, and labour market policies are key determinants of the relationship between regional innovation and labour markets. However, this research fails to investigate the relationship between regional innovation and the occupational structure of labour markets. Therefore, further research on regional innovation and labour markets is needed.