The Impact on Job-Quality of Firm-Level Support to Innovation: Evidence from Natural Experiment Conditions and Linked Employer-Employee Data in Portugal

Public support to firm-level investments in innovation is one of the main mechanisms through which the European Union (EU) promotes socioeconomic convergence among regions and the creation of quality jobs is considered a necessary condition for the convergence of disadvantaged regional economies. This paper exploits the availability of natural experiment conditions and linked employer-employee microdata in Portugal to offer empirical evidence on the impact on relevant job-quality outcomes of a large EU-cohesion-policy program to support SMEs’ innovation investments. The analysis is implemented by means of stratification/coarsened exact matching model, combined with a difference in difference scheme and estimated with a dynamic selection of the pre- and post-treatment periods. Our results indicate that the policy intervention in Portugal had a positive impact on job quality outcomes, with each supported firm that generated an average of 4.9 additional standard-working-time jobs, +2.9 skilled jobs, and +2.0 permanent-contract jobs, compared to a counterfactual scenario of no public support. These impacts were at a cost of about 16,100€, 27,100€ and 39,400€ in public subsidies per additional job, respectively. We also estimate that the program impact was responsible for a 2.20€ (+17.8%) increase of the per-hour remuneration. These findings are robust to a wide range of sensitivity analyses, in terms of alternative matching procedures and comparison groups, and they highlight the fact that increasing job quality is a policy goal that can be pursued, at a reasonable cost, also by means of cohesion-policy support to innovation aimed at enhancing the competitiveness of SMEs.