Unemployment and Innovation in Europe

The past decades saw intensified international competition as well as a rising R&D-GDP ratio in OECD countries. While labor productivity growth in the U.S. was low it was relatively high in EU countries which, however, suffered from high sustained unemployment rates after 1974. The US enjoyed high economic growth and was able to attract massive FDI inflows in the 1980s. At the same time US multinational companies (MNCs) were also increasingly active in western Europe and Asia, including Japan where EU firms faced problems in setting up subsidiaries. Foreign subsidiaries allow parent companies to observe new technologies in leading OECD countries and to tap the global innovation pool. Hence EU firms’ weak presence with foreign direct investment (FDI) in Japan and elsewhere in Asia could undermine EU competitiveness in the long term. This holds the more the presence of MNCs facilitates exports from the parent company.