Innovation and Academic Skills: A Small Firm and Small Country Perspective

Literature on skill-biased technological and organisational change has established that these kinds of changes are positively related with demand for highly skilled (and highly educated) labour. Most of the literature is based on the hypothesis that technological and organisational change cause a larger demand for highly skilled labour (see e.g. Abramovitz and David 1996; Bresnahan 1999), but it has also been argued that ample supply of highly skilled labour may affect technological change (Acemoglu 2002), and that the relationship is likely to be complementary and interdependent (Caroli and Van Reenen 2001; Acemoglu 2002). In literature based on ‘systems of innovation’ approaches, it has also been argued that science and highly educated workers play increasingly important roles in these systems (Nelson and Rosenberg 1993; Lundvall 2002; Nielsen 1999). Notwithstanding this general trend, different authors within systems of innovation literature emphasise the continuing relevance of practical know-how and non-formal learning processes based on learning-by-doing, -using, and -interacting (see e.g. Lundvall 1992). Combining insights from these two streams of literature, my thesis will be written on an assumption of a positive relationship between innovation and use of academic skills subject to a continuing importance of practical know-how and non-formal learning processes. Confronting this assumption with Danish empirics, interesting research questions arise. Danish empirics thus show that merely 14% of private Danish firms employ highly educated workers, and considering firm size it is especially small firms with less than 50 employees that do not employ highly educated workers (Rambøll-Management 2004). Evaluating these empirics in light of the ‘backbone status’ of SMEs in most economies (OECD 2000, 2002, 2005), we may claim that most small firms – fundamentally important in the Danish company structure – are know-how-based without highly educated personnel. This confrontation of literature and Danish empirics leads to research questions such as: • Is skill-bias from innovation and firm-level change a universal phenomenon? Is it mainly a US (or large country) phenomenon? Is it mainly a phenomenon flowing through large firms? Or do small, innovative, non-science-based Danish firms also start to hire highly educated labour? • And reversing the assumed causality: Can employment of a first highly educated worker in a small firm with no prior experience with this type of labour be seen as an unused innovative potential among small Danish firms? Both groups of research questions will be studied in the thesis, but the remaining part of this abstract will focus on the assumed causal relation from innovation and firm-level change to skill-bias. To empirically study skill-bias from innovation and firm-level change the dissertation will take advantage of a dataset that combines Danish innovation survey data with comprehensive panel data from the Danish Integrated Database of Labour Market Research. Combining and integrating firm level data on product innovation, organisational innovation, and introduction of new technologies with firm level data on employment dynamics (including educational background of employees), this dataset provides a unique foundation for studying the relationship between different types of firm level developments and qualitative employment effects. Defining a small firm as a private business firm with 20-50 employees, and taking interest in small firms with no highly educated labour employed in 1993, the chapter on skill-bias aims to discover whether the innovative and transformative of these small firms were more likely to have upgraded their workforce with a first highly educated employee in the period from 1994 to 1997 than the non-innovative counterparts. To serve this aim, a binary logit model has been decided upon as the econometric model. The dependent logit reflects the log-odds of employment vs. non-employment of highly educated labour in the period 1994-97 in the individual firms. Main explanatory variables are categorical data on organisational innovation, product innovation, and (markedly) introduction of new technologies in the period from 1993 to 1995. In addition, industry codes and a measure for overall change in firm employment have been introduced as control variables. Generally the empirical findings indicate that organisational innovation and markedly ICT-technological change promote an economic transformation where traditionally know-how-based small firms of the Danish innovation system start to upgrade their human resources with highly educated and scientifically trained labour. Such a development is complementary to, but qualitatively different from, an incremental skill-bias where employment prospects of highly educated labour gradually improve with innovation and economic change. In fact, the development can be seen as an introduction of a radically new type of human embodied knowledge and learning capability in know-how-based small firms that are so numerous in the Danish innovation system.