Business Commons^™

This paper investigates the dynamics of wages and profits and the influence innovation strategies have on them. The relationships between innovation, productivity, and distribution are modeled and estimated by employing panel data techniques. Two European innovation surveys (1994–96 and 1998–2000) are used with data at both the country and industry levels. Innovation is found to have positive effects on income dynamics beyond the role it has on productivity gains; it may weaken the distribution constraint posed by the competition between profits and wages. Profits are driven by both the Schumpeterian effects of new products and the diffusion effects of new …