Re-Integrating Losers of Innovation-Driven Structural Change – What can Labor Market Policy Do?

Eric Thode, Bertelsmann Stiftung

An increasing flow of new products, better technologies and refined ways of work organization are creating jobs. But job destruction is at the same time prominent in outdated production lines and obsolete industries. Labor market policies play an important role through supporting the employees’ own efforts to relocate.

Eric ThodeRelocation of workers from declining to prospering occupations, industries and regions is a prerequisite for successful structural change that is induced by innovative activity. In order to make innovation beneficial for the labor market, it has to be ensured that more jobs are created than are destroyed. The challenge is to enable people to relocate smoothly. Since innovation and Schumpeterian creative destruction is an increasing driver of the economy, change and relocation becomes an ever larger part of work life. An increasing flow of new products, better technologies and refined ways of work organization are creating jobs. But job destruction is at the same time prominent in outdated production lines and obsolete industries. Labor market policies play an important role through supporting the employees’ own efforts to relocate. The churning rate of creative destruction is ever increasing, development and production cycles are speeding up. Labor market policies have to adapt accordingly. This paper addresses the different effects innovation exerts on employment both at the micro and at the macro level as well as the interrelations with labor market regulation. It subsequently develops the distinctive features of modern labor market policies, e.g. with respect to the design of unemployment insurance, active labor market policies and public employment services. Path dependencies and different institutional setups between the U.S. and Europe are specifically taken into account.

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