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In left-behind places, business R&D is a mixed blessing

In regions where most jobs are low-skilled, high-tech industry risks widening inequality in the workforce, say Tommaso Ciarli and his colleagues.

Speaking last week on her government’s science policy, prime minister Theresa May noted that “some parts of the country that once thrived because of innovation and technology have seen the jobs and opportunities of the past fall away”.

One way that policies such as the industrial strategy, Northern Powerhouse and Midlands Engine seek to redress this falling away is by attracting innovative firms that will create growth and jobs. Alongside the desire to attract high-tech companies, however, comes the fear that innovation might lead firms to shed workers, increase polarisation between the skilled and unskilled, and make work more precarious.

So do innovative companies bring high-skilled, high-wage jobs or insecurity and inequality? We have tried to answer this question by using census data to study the impact of business R&D investments—a crucial aspect of innovation in high-tech industries—on local labour markets between 2001 and 2011. The answer is it depends, and it’s complicated.

We found that, contrary to previous studies that focused on high-tech industries, IT adoption and innovation within firms, R&D investment is not associated with extra jobs in the local labour market. As many jobs are destroyed as are created when such spending grows. Employment in manufacturing, transport, business and financial services rises, while jobs in construction, wholesale and retail trade, and food and accommodation services decline.

The next question regards the quality of the jobs created. Here, local factors become all-important.

In the post-industrial, ‘left-behind’ regions where before 2001 a high proportion of workers were in routine, easily mechanised jobs, investment in R&D leads to net job creation. These jobs, however, are in service industries, including retail and accommodation; employment in manufacturing falls. This supports the idea that high-tech industries can polarise labour markets by creating a small number of well-paid, skilled jobs that in turn creates a demand for unskilled labour to perform manual personal services.

As for skills, growth in R&D spending sees a rise in the overall proportion of workers holding qualifications at level four and above, equivalent to a higher national certificate. Again, however, post-industrial regions show the opposite trend, with the proportion of educated workers falling.

The picture for self-employment, which is rising sharply in the UK, is similar. Overall, R&D growth induces a drop in both self-employment and, to a lesser extent, permanent jobs. Once more, post-industrial regions are different; here, self-employment grows faster than paid employment, particularly for people aged under 35.

In these regions, business R&D spending causes a dramatic reduction in permanent employment for 16 to 24-year-olds, with no increase in self-employment. Those aged 25 to 34 see some increase in permanent jobs, but mainly move to self-employment, while those aged 35 to 64 see similar increases in both categories.

The youngest members of the workforce in the post-industrial regions, then, have proved most vulnerable to the shifts in the labour market reflected in patterns of R&D spending. The oldest workers have fared best, seeing gains in all forms of employment, while those in the middle seem to be especially likely to move into self-employment.

Other researchers have also found evidence that self-employment in the UK is only associated with entrepreneurship and innovation in urban areas. In rural areas it is more a response to a lack of other opportunities, part of a shift towards low-skilled, low-paid service work. More research is needed in this area.

The UK undoubtedly needs targeted industrial and innovation policies, especially to address its persistently low productivity. But our findings highlight that incentives for R&D spending may have different impacts in different places.

In particular, R&D investments may negatively affect the labour market in the regions most in need of help, where a large proportion of workers are in low-skilled, routine jobs. Not promoting R&D investments in such regions, on the other hand, would exacerbate regional inequalities.

Policies to promote business R&D must be part of a package aimed at making innovation inclusive and creating a virtuous cycle between productivity and employment. Our research points to the need to prepare the ground for R&D spending, through education and training policies, both for young people entering the labour market and for middle-aged workers in need of retraining.

Tommaso Ciarli, Alberto Marzucchi, Edgar Salgado and Maria Savona work at the Science Policy Research Unit at the University of Sussex. See also their working paper at rsrch.co/2s2rPvK

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This article also appeared in Research Fortnight