Please review this graph.
One of the questions we’ve been exploring the most intensively is “Why do market-creating innovations create the most jobs?”, and we think we’ve come up with the answer. This is a tangled subject area—a lot of the research that is done here is sponsored by companies, politically-motivated (especially now!), and kind of imprecise, but bear with us:
As we lay out in our original article, different types of innovation have very different impact on job creation, as well as on economic growth. Efficiency innovations destroy jobs; performance-improving innovations create jobs, but only marginally, due to their substitutive nature; leaving market-creating innovations to do the heavy lifting of job creation. And they do, in four ways, as we depict in the chart at the top of this thread. Think of a market-creating innovation like a stone thrown into a pond, with employment effects emanating out like ripples from that stone, each larger than the last. So, from smallest to largest:
- First, they create jobs due to direct employment—increasing employee headcount at the innovating company. Surprisingly, this might well be the most modest way in which they contribute to job growth.
- Second, they create jobs in the value network—the supplier networks and distribution channels through which the product or service is sourced and sold. Because these channels are generally new-to-the-world, this effect can be large.
- Third, and most distinctively, they have an empowering effect on employment—they create jobs through their adoption by aspiring entrepreneurs. From the seamstresses who used the Singer sewing machine to supply the earliest mercantile shops to the app developers who feed the iPhone ecosystem today, this effect is powerful and almost always impossible to estimate in advance.
- Finally, market-creating innovations share the indirect employment effects of performance-improving innovations—the “spillover jobs” in local economies that house workers with more money to spend. This effect might well be the largest of all, though it is also the most diffuse and difficult to track.
We’ve gotten good reactions from people who work in this field for a living and felt confident about its description in the past, but in an era of A.I. and robotics, will it still hold true?