High Skill Employment and Innovation

Archived Topic Box from the 2005 Fifth Annual Benchmark Report

Innovation is a fundamental driver of productivity growth. Through the introduction of new technologies and ways of doing things, BC firms are able to increase the amount they produce from a given unit of inputs – thereby promoting further economic growth. As a result, understanding how and why innovation occurs is fundamental for encouraging economic growth and increasing standards of living in the province.

Fundamental innovation is the invention of new products and processes, and is often quantified and measured by numbers of patents granted and by R&D activities in a region. More important in a small open economy such as British Columbia, and often a more significant factor in total innovation measures and impacts, is applied innovation, whereby new products and process developed elsewhere are introduced to Canadian industry and utilized, or when old technologies are used in new ways.

One of the most recognized factors in innovation is human capital. Human capital refers to the skills and knowledge of labour inputs in the production process. Although measuring the precise impact of skills and education on innovation is challenging, linkages between education levels and overall economic growth are clear. A recent Statistics Canada study illustrates that differences in average literacy and numeracy skills explain 55% of differences in GDP per capita in Canada between 1960 and 1995, a relationship that is three times the return associated with investments in physical capital. According to a study of the Canadian manufacturing industry, hiring experienced and university educated employees is highly correlated to innovation performance in individual firms. The connection between education and growth has traditionally been linked to those professions most involved in R&D activities, technology development and innovation. Specifically, the share of natural and applied scientists and engineers in the total labour force are recognized as critical factors in fostering fundamental innovation.

While science based professions are still key to fundamental innovation, the demand for skilled labour across all industries has increased in recent years to the point where the demand for knowledge workers is now almost ubiquitous across the economy. The demand for skilled labour is increasing across BC and around the world, with even traditional industries and jobs such as trucking and construction requiring workers to have knowledge of technologies such as computers and GPS systems. Federal government estimates for 2004 showed more than 70% of all new jobs created in Canada required some form of post-secondary education, and only 6% of new jobs were held by those who have not finished high-school. In fact, on a net basis, of all jobs created in Canada in the 1990s none were filled by persons without a high-school diploma.

Sources: Rao et. al. (2001), The Importance of Innovation for Productivity, International Productivity Monitor, Number 2, Spring 2001; Statistics Canada (2004) International Adult Literacy Survey: Literacy Scores, Human Capital and Growth Across Fourteen OECD Countries, cat. #89-552; Statistics Canada, Shifts in the Composition of Labour Markets Towards Knowledge Workers, web summary of cat. #11-623; Nicholson (2003), The Growth Story: Canada's Long-run Economic Performance and Prospects, International Productivity Monitor, Number 7, Fall 2003; Human Resources Development Canada (2002), Knowledge Matters: Skills and Learning for Canadians; Rao et. al. (2002), The Importance of Skills for Innovation and Productivity, International Productivity Monitor, Number 4, Spring 2002.