In a recent paper, Dutz et al. (2012a) debunk a conventional view that innovation is not inclusive in the sense that the benefits are presumed to flow only to skilled workers and shareholders of technically sophisticated companies. They provide support for a contrasting view that innovation should be interpreted as applying to a broader range of entrepreneurial activities, including the introduction of products and processes that are new-to-the-firm. Based on firm-level data of over 26,000 manufacturing enterprises across 71 countries, they show that enterprises that innovate in this broader sense employ a higher share of unskilled workers, a higher share of female workers, and attain higher TFP and more rapid employment growth than firms that do not innovate. In particular, when enterprises experience the positive spur that comes from the ability to expand by accessing competitive markets, product and process innovation and increased TFP make expansion profitable: the ensuing output expansion creates job growth that is not biased away, but rather is generally tilted towards inclusion of the unskilled. Across all countries, unskilled workers constitute 34% of the share of the employees of the combined group of product and process innovative firms, versus 30% for non-innovative firms. A 10% increase in the share of unskilled workers is associated with an employment annual growth rate that is almost 1% higher for innovative firms than for non-innovating firms, and the difference is quantitatively important over time. Also, across all countries, innovative firms’ employment of female workers is 29% versus 22% for noninnovative firms, and again the employment growth rate of innovative firms is greater than for noninnovating firms where the share of female workers is greater. Importantly, our finding that innovating firms employ a higher share of unskilled and female workers than non-innovating firms does not imply that their income is higher, or their income growth is faster, than the skilled – as even though innovating firms hire a larger share of unskilled workers than non-innovating firms, their share is still significantly lower than skilled workers. And they may be receiving significantly lower pay and lower income growth, questions that our data unfortunately did not allow us to address. However these findings, coupled with the increasing empirical support in the literature for the view that low-wage jobs are a stepping stone for the integration of the jobless into employment and better-paid work in the future, do provide a key underpinning to innovation-driven inclusive growth.<sup>47</sup> No matter how efficient the reallocation and innovation patterns in any given country’s enterprise sector, employment and wages will fluctuate especially for workers in those firms that contract or go out of business and in new businesses that are launched and expand. And the introduction of new skill-biased and labor-saving technologies can lead to widening employment opportunities and earnings differentials between skilled and non-skilled workers, and to technological (structural) unemployment – creating three overlapping sets of losers (Brynjolfsson and McAfee 2011): (1) low-skilled workers (technologies often displace routinized tasks and increase the value of more abstract and data-driven tasks, enhanced by complementary changes in work organization technologies); (2) “non-superstar” workers (in some winner-take-all or winner-take-most industries, a few highly-talented people get the lion’s share of rewards); and (3) owners only of own-labor (to the extent that technology reduces the relative importance

> that innovation makes a strong positive contribution to total employment growth. Alvarez et al. (2011) find that in the case of Chile, process innovation is generally not a relevant determinant of employment growth, and that product innovation is positively associated with employment growth.

> 47 A number of recent papers have sought to ascertain empirically whether low-wage employment is a stepping stone that enhances future occupational advancement prospects, or whether it results in a low-pay-no-pay poverty trap cycle. Although the evidence is somewhat mixed and subject to debate, there seems to be greater support for the stepping-stone effect. For analysis of the pathways of upward mobility for low-wage workers, see among others Booth et al. (2002), Knabe and Plum (2010) and Mosthaf (2011).

21