ABSTRACT
The persistence of high levels of unemployment over business cycles since the late 1970s,
especially in continental Europe, demands special attention in order to try to understand
its causes and possible remedies. Unemployment has been increasing steadily through all
the OECD countries in the 1980s and at each successive downturn of the business cycle
it has reached larger and larger levels. In the early 1990s it was still increasing in continental
Europe, approaching levels that paralleled those reached in the 1930s (Bean, 1994). The
traditional debate on the determinants of unemployment alternates between the ‘classical
unemployment hypothesis’, due to excessive real wages and ‘Keynesian unemployment’,
attributed to lack of demand. Little attention in this regard has been paid to the
Schumpeterian analysis about the effects of technological rivalry (Schumpeter, 1934,
This chapter provides an empirical analysis of the relationship between the innovation
capability of an economic system, open to global competition, and its levels of
unemployment. According to the hypothesis put forward, the higher the innovation
capabilities of each economic system, the lower should be the unemployment. Innovation
capabilities of each economic system should be measured by the total levels of R&D
activities, learning and investments. Special attention has been given in this context to
measure the contribution of technological externalities available to each firm, within its
own national innovation system, with respect to the general levels of innovation
capabilities.
