Last May 1st, Labor Day was celebrated, and, as the DEG is actively involved in studying the economics, entrepreneurship, and economics of innovation at the company level, we went to make it simple with Professors Hugo Castro Silva and António Ribeiro.

How important is the study of the economics of innovation?

The study of the economics of innovation is important because technological progress is a key driver of economic development, and understanding the economic factors that influence innovation can inform policies and strategies that promote innovation and entrepreneurship to improve economic outcomes. Moreover, the economics of innovation can also help explain why some firms, regions or industries are more innovative than others and can inform strategies for fostering innovation and technological progress in different contexts.

How can innovative companies retain their best human resources?

Hugo Castro Silva and Francisco Lima studied how firms that rely on advanced knowledge (usually those that are the most innovative) can apply human resource practices to retain the most skilled workers.

That small, knowledge-intensive firms struggle to keep their best workers, which severely hampers their ability to innovate and grow and puts them at a severe disadvantage against larger firms. Engaging in the best human resource practices helps to reduce this gap but is far from eliminating it.

This finding highlight the importance of policies to aid smaller firms in the retention of highly skilled individuals so as to foster innovation and economic growth.

Could entrepreneurship be causing wage inequality?

António Ribeiro, Rui Baptista and Francisco Lima examined the impact of entrepreneurship and creative occupations on wage inequality in regional labor markets. Their study showed that inequality is larger in regions where new firms are prominent at creating jobs and where there are more workers in creative jobs.

This happens because new firms usually tend to have larger differences between the best and the worst-paid workers, even if these young firms usually pay lower wages than average.

The upside to this is that new firms offer a greater share of high-paying jobs than older firms, meaning that the source of inequality does not come from the creation of lower quality employment. The study recommends that policymakers consider the potential of entrepreneurship to drive job creation together with its potential connection with greater wage inequality, so as to find the right balance.