Prices and Employment: A Theoretical Model and an Empirical Application
for West German Manufacturing Firms
Author(s): Werner Smolny
Volume: 46 (3)
Issue: September 1998
Abstract: In this paper, a theoretical model of the impact of product and process innovations on output, capacity utilization, employment, and prices is developed. The model is estimated with a unique set of micro-data from West German manufacturing firms. The empirical results reveal that innovative firms are more successful. They show a higher utilization and more output and employment growth than non-innovative firms. Innovations also change market behaviour. In sectors with a large share of product innovators, the firms more often change employment and less often change prices, i.e., product innovations reduce price competition.
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