The Political Economy of Technological Innovation and Employment

Building on the varieties of capitalism thesis of comparative advantages in technological innovation, the authors theorize the effect of sociopolitical coordination from a dynamic perspective and then apply the dynamic theories to the political economy of employment, in comparison to the existing employment literature situated in a constant-technology context. Based on cross-sectional survey as well as pooled time-series aggregate data, the authors argue that new technologies not only increase productivity through process innovation but also generate rents through product innovation. By preventing opportunistic behavior between firms, sociopolitical coordination intensifies reciprocal sharing of innovation, which increases productivity returns but dilutes rents, leading to comparative advantage in process over product innovation. Because process innovation is labor saving but product innovation is employment friendly, interfirm coordination further leads to comparative disadvantage in job creation from innovation. In other words, the Anglo-Saxon employment creation advantage, currently identified on the static basis of noninnovative low-skill industries, is reinforced by a similar advantage from the dynamic perspective, based on strength in job-friendly innovation.