Innovation support and its effect on employment: the case of Brazil

Purpose Theoretically, the effect of innovation on employment is ambiguous. There is a negative impact due to labor-saving efficiency and a positive impact through increasing competitiveness, leading to business expansion and new hiring. In this regard, we investigated the effect of innovation support on employment for Brazilian firms that received public support for innovation from Finep. Design/methodology/approach We use a novel database by merging Finep and RAIS microdata, which allows for a better identification of the causal effect. Moreover, we use a staggered difference-in-differences (DiD) method recently developed by Callaway and Sant’Anna (2021), specifically designed for situations where treatments occur in different years. Findings We found a statistically significant effect of innovation support on formal employment, especially on firms seeking financing for process innovations (but not product innovations). Originality/value Unlike previous studies assessing the causal effect of Brazilian government support on innovation, we used as a control group companies that applied for support but were not selected. This novel strategy provides a better identification of the causal effect.