The Interplay of Innovation, Education, and Employment in EU Policies

1. The Links between Job Creation, Innovation,Education and Training:An Assessement of Policies Pursued at the EU Level Dr. Holger Bonin ZEW Mannheim (Germany) Dr. Werner HölzlWIFO Vienna (Austria) European ParliamentCommittee on Employment and Social Affairs Brussels December 2nd, 2009

2. Agenda • Background and Targets of the Study • The Innovation-Human Capital-Employment Triangle • Assessment of EU Policies • Conclusions

3. Background and Targets of the Study • Education, innovation and employment • are important building blocks within the Lisbon agenda • are highly interrelated macro economic variables • Central questions: • How do the policies pursued at the EU level interact? • Are the policies consistent? • Approach • Assessment of the conceptual and/or empirical basis of EU policies

4. Innovation-Human Capital-Employment Triangle • Innovation and Employment Change • Skills for Innovation • Skills Upgrading and Labour Market Frictions

5. Innovation and Employment ChangeQuantity Dimension Innovation is generally job creating • New technology yields lower prices which creates demand • Innovating firms obtain rents from their nl investment of innovating firms strong position of innovating firms • Workers sharing part of innovating firms’ profit consume more • Technological unemployment may put downward pressure on wages

6. Innovation and Employment ChangeQuality Dimension Technical changeis skill-biased!

7. Innovation and Employment ChangeQuality Dimension Technical changeis skill-biased!

8. Skills for InnovationProblems of innovative firms Innovation requires inventors, especially at the technical frontier

9. Skills for Innovation Innovation requires many different typesof skills

10. Skills Upgrading and Labour Market Frictions Skill mismatches are an importantfeature on European labour markets

11. Assessment of EU PoliciesConsistency of Targets • Higher education targets are fully consistent with employment and innovation targets • Innovation targets are generally consistent with employment targets. • High employment targets are generally consistent with education targets.

12. Assessment of EU PoliciesExamples of Specific Policies • “New Skills for new Jobs” • rightly stresses the importance of the matching processes,BUT these are not only influenced by supply of wrong skills • stresses somewhat too much the gains from anticipation,given the uncertain nature of strucural change • ESF • can serve to retrain after innovation has materialized • can support skills for innovation, if carefully designed

13. Assessment of EU PoliciesExamples of Specific Policies • Integrated education and innovation policy • Co-ordinated ERI strategy in Finland • Development of higher education institutions based on content, i.e. preset focus of innovation policies • Integrated employment and education policy • Employment stability can promote vocational training more than unstable empoyment. • Good practice: short-term allowance schemes can preservehuman capital in the face of economic shocks

14. Conclusions • General skills upgrading is a core strategy to achieve the Lisbontargets of more and better jobs while maintaining social cohesion. • Specialist skills for innovation are especially important, asthey contribute to self-reinforcing growth cycles. It is usefulto develop integrated education-innovation strategies. • Other than specialist skills are needed in the innovation process,especially for the diffusion and adaptation of new technology. • Employment policy instruments must be available, in orderto respond to unwanted effects of skill-biased technical change. • The scope for anticipatory education policy is limited. Employmentpolicies that aim at higher adaptability of the workforce and higher participation are more promising.