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394
DO INNOVATIONS STIMULATE EMPLOYMENT GROWTH
IN PRIVATE FIRMS?
Alisher Suyunov
Independent researcher Westminster International University in Tashkent
E-mail: alishersuyunov.as@gmail.com
Abstract:
For Uzbekistan experiencing a demographic gift phenomenon, the
increased supply of workforce poses significant challenges for the Government to
reap benefits from growing population and reach sustainable and inclusive
economic growth.
Using a sample of 46,405 firms from 30 countries in Europe and Central Asia
region in World Bank Enterprise Survey data, we estimate the effect of innovations
on employment growth in firms. Our preliminary results imply product and process
innovations experienced by enterprises improves employment growth, the effect is
even stronger in firms with higher growth rate.
The positive employment effects of innovations in firms in Uzbekistan would
improve the absorption of growing working-age population on condition that firms
are provided with incentives to invest in product and process innovations.
Keywords:
innovations, job creation, transition probability, Uzbekistan
Creating more and better jobs is one of the most critical challenges in
economic development of the countries in Europe and Central Asian region.
Employment is essential because it plays a major role in maintaining their income
security to support their life and leisure. Putting extra pressure on people,
unemployment worsens individuals’ well
-being and their integration to the
society. In addition to employment importance in individuals’ survival in modern
world, employed people are inclined to exude trust in other people and be
interested in civic participation. ILO et al. [1] pointed up an importance of focusing
on employment aspects of growth, creation of decent jobs, its sectoral
composition, thereby, implying a research gap to be filled in further studies.
Holmes et al. [2]’s study emphasised the urgency of employment creation in the
Central Asian region
–
Afghanistan, Kyrgyzstan, Tajikistan, and Uzbekistan
–
so-
called “fragile states” with weak job opportunities.
For Uzbekistan experiencing a demographic gift phenomenon, the
increased supply of workforce should be effectively integrated in the economy to
achieve a sustainable and inclusive economic growth. The misalignment of job
creation and job destruction is one of the most overlooked aspects of labour
market in Uzbekistan. Over the period from 2017 to 2021, a total number of
created jobs is accounted for roughly one million workplaces. In contrast, job
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destruction figures suggest there has been substantial reduction in a number of
jobs, resulting in net job creation of 181.3 thousand jobs, while over 2017
–
2020
period, a number of working-age population increased by 1.1 million people.
Figure 1. Net job creation and working-age population growth in
Uzbekistan over 2011
–
2020
Source: State Statistics Committee of Uzbekistan
A comparison of working-age population growth trends with net job
creation dynamics (Figure 1) shows working-age population growth in
Uzbekistan has not been accompanied with sufficient net job creation. This
finding is also consi
stent with World Bank [3]’s argument on economic
development of Uzbekistan observed over 1996
–
2016 was not able to maintain
sufficient job creation for rapidly-growing population. As entrepreneurship is one
of sources of job creation, the entrance of new firms into market plays a crucial
role in labour market. In this context, the firm growth in terms of the number of
workers
–
business dynamism over time can imply current state of business
environment in Uzbekistan. Business dynamism shows creative destruction
process in economy has been operating
–
an up-or-out process by which
unproductive incumbent firms are pushed out of the market by new entrants or
other more productive incumbents or both [246]. Empirical studies pointed up
the contribution of firm dynamism on growth in developing countries. The
capacity of productive enterprises to expand is widely identified as key to a
country economic prosperity [5]. Hsieh and Klenow [6,7] and Arouri et al. [8]’s
studies showed that the failure of high-productive enterprises is growing large
over time results in significant losses in aggregate productivity growth in
developing economies in comparison with developed ones.
-
200
400
600
800
1 000
1 200
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
thousand units
Net job creation
has been lagging behind
working-age population growth
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Our estimate of firm dynamics imply firm dynamism is generally weak in
Uzbekistan. The transition probabilities demonstrate that relatively few firms
transitioned from one size category (micro, small, medium, and large) to another
between 2016
–
2019. When firms enter and operate in private sector, very few of
them seem to be able to grow in size, defined as a number of workers. Estimates
of firm dynamism in terms of firm size show that Uzbek businesses are inclined
to stay small, while transition probability to medium- or large-size remained low.
However, as OECD [9] pointed out, the smaller SMEs are the more likely they are
to close operations being affected by shocks. It indicates that Uzbek businesses
are remain prone to external factors, deteriorating its probability of survival in
the market.
Table 1.
Probability of firms transition to other firm size categories, % of firms
Firm size (in 2016)
Firm size (in 2019)
Micro
Small
Medium
Large
Micro (up to 10)
57.4%
32.7%
7.6%
2.3%
Small (10-49)
7.6%
83.1%
9.3%
0.0%
Medium (50-249)
0.6%
6.6%
87.3%
5.5%
Large (250+)
0.0%
1.4%
14.3%
84.3%
Source: The author’s own estimates
Our preliminary estimates of firm dynamism show that in the context of
Uzbekistan, micro and small enterprises’ probability of entering large size
category remained negligible (Table 1). In 2019, while negligible share of micro
and medium-size firms tends to enter large size category, small firms in both
countries did not enter large-size category. In addition, the probability of
remaining at the same size category is high which indicates firms in these
countries are inclined to remain unchanged in terms of their size. This finding in
the context of Uzbekistan is consistent with the World Bank [231]’s results which
showed the Uzbek private firms have not grown as fast as key players and tend to
stay small over time. Despite the fact that a dynamic private sector is foundation
of decent jobs [11], dynamism in Uzbek private sector is low.
From the perspective of job creation, weak net job creation we stressed out
previously could be attributed to insufficient firm dynamism rather than solely
job destruction. Although the firms’ entry rate has been high, once they are
Иқтисодиётни рақамлаштириш
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created firms tend to stay small and grow slowly. This pattern highlights Uzbek
(formal) private sector inability to absorb the growing working-age population,
i.e. bulge workforce, leaving workers with few employment opportunities,
encouraging seeking job opportunities in informal sector. In general, in
Kazakhstan and Uzbekistan, weak firm dynamics and market imperfections
prevent the best firms from flourishing. In general, private sector in Uzbekistan
lacks dynamism reflected upon weak job creation, limited firm entry, growth, and
exit in addition to low investments in physical capital, innovation, and worker
training.
In this research study, we use a sample of 46,405 firms from 30 countries
in Europe and Central Asia region which are covered by pooled World Bank
Enterprise Survey data. Our preliminary empirical results suggest that both
product and process innovations contribute to employment growth.
In this case, a median firm engaged in product and process innovation
demonstrates a growth in employment by 0.195 pp. and 0.496 pp. respectively.
The magnitude of the impact of both is found to be greater in firms in 70th
quantile for both product and process innovations. Although some research
studies documented negative relationship between innovations and employment
growth, our estimates on positive employment effects of product innovations are
in line with other research studies [144] arguing firms that innovate products or
processes and have achieved higher productivity tend to demonstrate higher
employment growth than their non-innovative peer.
The preliminary results are consistent with Ortiz et al. [13], Lachenmaier
and Rottmann [14] findings on the positive effects of introduction of product or
process innovations on the demand for labour using firm-level data. On average,
our estimates imply the positive impact of process innovations is greater than that
of product innovations which is consistent with Greenan and Guellec [15] and
Lachenmaier and Rottmann [14]. As product innovations, in general, are related
to an increase in employment independent of industry. A key source of
innovations in products is the cultural economy that generates additional
spillovers into other sectors of economy and enhance both their competitiveness
and productivity [16].
To conclude, our study showed that both product and process innovations
experienced by enterprises can contribute to employment growth. This estimate
is even stronger in firms with higher growth rate. From policy perspective, the
positive employment effects of innovations carried out by firms in Uzbekistan
would improve the absorption of growing workforce given that firms are
provided with right incentives to invest in product and process innovations, such
as fiscal incentives after introduction of an innovative product into the market or
improved business process.
Иқтисодиётни рақамлаштириш
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