Skills and social insurance: Evidence from the relative persistence of innovation during the financial crisis in Europe

We compare investments in innovation between the early days of the financial crisis and mid-2009 using a survey covering more than 5,000 firms across twenty one European countries. Our interest is in how the stock of skilled labor affects the persistence of innovation investment during a macroeconomic downturn. We infer differences in skill from national levels of participation in vocational education and training programs (VET), interacted with two forms of income insurance: levels of employment protection (EP) and unemployment insurance (RR). These forms of insurance should lead VET students to undertake training for skills which are more risky but potentially more productive. We show that the strongest sustained investment in innovation is associated with a combination of high VET with either strong EP or strong RR. The result supports the view that the supply of skill makes an important contribution to innovation, and that social insurance can encourage socially beneficial risk-taking in educational choices.