Is firm innovation only about top skills?

GMason 150.jpgGeoff Mason is Visiting Professor at the ESRC-funded Centre for Research on Learning and Life Chances (LLAKES), UCL Institute of Education

Skills are a recurrent theme in the government’s Industrial Strategy, and are widely recognised as central to firms’ ‘absorptive capacity’ (AC) – their ability to effectively identify and use knowledge, ideas and technologies that are produced elsewhere. But what are the specific types of education and skills that contribute most to the development of AC, and subsequently to innovation and productivity growth?

In previous research exploring the links between skills and AC there has been a tendency to only look at the highest-skilled workers in the workplace, such as university-educated engineers and scientists, and assume that this is where a firm’s AC is defined. Little attention has been paid to the rest of the workforce – the potential contributions made by intermediate-skilled workers (for example, technicians and apprentice-trained craft workers) and by workers with uncertified skills acquired through informal on-the-job training and experience.

pexels-photo-297648 700

In recent work carried out at the ESRC-funded Centre for Research on Learning and Life Chances (LLAKES), we have explored these issues by analysing an industry-level dataset which covers the US and seven Western European countries (PDF) between 1995-2007. This has made it possible to study the differences between industries and countries in their respective opportunities to acquire useful external knowledge through foreign trade and foreign direct investment.

Not surprisingly, the findings suggest that the conversion of opportunities for external knowledge sourcing into innovative output is positively related to employment of high-skilled workers. But this positive link to employees is not limited to the highest skill level – it also extends to upper intermediate-skilled workers.

These results suggest that technicians and other upper intermediate-skilled workers play key support roles, specifically in areas such as new product design and development. In addition, by facilitating the adoption of best practices, new business models and investment in other intangible assets, upper intermediate-skilled workers contribute further towards innovation and productivity.

pexels-photo-12733 700We also found evidence that the translation of innovative output into productivity performance depends on a firm’s full range of skill levels – including uncertified skills (for example, those acquired through informal on-the-job training and work experience), and not just skills associated with formal qualifications.

So although employees such as professional engineers and scientists may contribute disproportionately to AC by identifying and acquiring useful external knowledge, the ability of firms to apply this knowledge also seem to depend on the skills of intermediate-level workers and other sections of the workforce.


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Read more about this research in Which skills contribute most to absorptive capacity, innovation and productivity performance? Evidence from the US and Western Europe (PDF) (LLAKES Research Paper 60)

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