Innovation and Employment Churning: The Dynamics of Labour Market Adjustment in Innovating Firms

This paper explores the effects of product innovation, process innovation and R&D expenditure on job creation, job destruction and churning using a sample of Italian manufacturing firms. The results indicate that product and process innovations tend to amplify job creation, while they reduce job destruction. Conversely, R&D tends to work in the opposite direction, reducing job creation and amplifying job destruction. We also find that employment churning increases with firms’ engagement in R&D activities, while it decreases when firms introduce new products and/or process innovations. Crucially, the study identifies asymmetric responses of worker flows and churning to innovation strategies, depending on firms' growth trajectories and whether product and process innovations are implemented separately or simultaneously.