Do innovations stimulate employment growth in private firms?

Аннотация

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 394 Иқтисодиётни рақамлаштириш шароитида қулай ишбилармонлик муҳитини ривожлантириш йўналишлари 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 Net job creation has been lagging behind working-age population growth thousand units 1 200 1 000 800 600 400 200 - 2011 2012 2013 2014 2015 2016 2017 2018 2019 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 consistent 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. 395 Иқтисодиётни рақамлаштириш шароитида қулай ишбилармонлик муҳитини ривожлантириш йўналишлари 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 probabil