Innovation and Employment Dynamics in European Regions

The impact of technological change on employment growth has long been debated. Most of the literature approaches this issue at the firm, the sectoral, or national level, whereas the regional approach has been largely neglected, especially in the European context. The article analyzes the relationship between innovation and employment growth at the regional level (Nomenclature of Territorial Units for Statistics - NUTS2) for twenty-seven European countries. Despite the undisputable difficulties of empirical analyses due to the fact that employment change depends on various aspects—such as macroeconomic and cyclical conditions as well as labor market dynamics and regulation—the results show that the direct effects of product and process innovation are moderated by specific regional structural characteristics, namely the region’s functional specialization and settlement structure. In particular, the effect of product innovation on regional employment is positive in regions with a larger presence of production functions, whereas the impact of process innovation is negative in metropolitan settings.