Association for Public Policy Analysis & Management

Innovation is considered one of the main drivers of the transformation and scaling-up of enterprises and it provides important opportunities both for workers and entrepreneurs. These advantages range from reducing costs to expanding markets, to increased employment as well as to closer and more personalised relations with customers and other stakeholders.

Moreover, both large and small companies benefit from innovation: although large companies are often thought to be better in handling innovation, it is also recognized that innovation has been a tool for SMEs to gain competitive advantage by facilitating the reach to new markets and knowledge. Innovative sectors can also provide a high-growth potential that young and small firms need to thrive (Decker et al. 2015). In return, it is also found that young and small firms have a higher propensity to innovate and contribute highly to growth and job creation (Acemoglu et al. 2013).

However, innovation in general and the digital economy -which characterizes the current era, in particular, also presents challenge, especially for the labour market. As the Future of Work initiative of the ILO highlights, innovation can lead to considerable job destruction (creative destruction) and to the worsening of working conditions such as excessive hours and proliferation of non-standard forms of work (see for example Berg 2016; ILO 2015; Peters, Riley, and Siedschlag 2013; Brynjolfsson and McAfee 2011). Another concern is that innovation may not have equitable impacts and may penalise those firms and workers who are not able to catch up, such as some SMEs and low-skill workers. As a result it may contribute to increasing inequalities.

With these challenges in mind, the paper aims at analysing the links between innovation, enterprises and the labour market from both theoretical and empirical perspectives. Exploring such links first requires a good understanding of who innovates at the macro and micro level. Thus, the paper begins by exploring indicators associated with innovative countries before examining the characteristics of innovative firms - including size, age, and trading status (section 1).This also includes a definition of innovation and its metrics. Section 2 examines, in particular, employment and labour outcomes - in terms of job creation, employment relationship, education, inequality and productivity that are associated with innovative enterprises. By doing so, the paper also aims at reflecting the circular relationship between enterprises and innovation: while innovation might lead to a transformation in firm characteristics, enterprises also shape innovation by both creating and diffusing new knowledge and technology. Such an analysis will help enhance our understanding of whether adopting innovation in enterprises contributes to the creation of decent jobs, which can inform on policies needed to translate its potential benefits into decent work for all.