The kind of things that money just can't buy: The role of potential absorptive capacity in enhancing firm-level employment growth

This study provides new firm-level evidence on the impact of the technological change generated by investments in instrumental goods on employment growth. We posit that firms' potential absorptive capacity moderates this effect by leveraging the embodied technological change (ETC) contained in these goods. Testing our hypothesis on administrative linked employer-employee (LEED) data for a sample of 6.120 manufacturing firms over 2008–2017, we find that ETC investments have an overall positive and significant effect on employment growth. Such an effect depends on firms' technological intensity and size class, with a larger impact on high-tech and large firms. However, higher levels of potential absorptive capacity increase positively and significantly the effect for low-tech and SMEs in a way that is more compatible with a conditional role than a moderating one. Our findings imply that regional policies should consider firm-specific investments targeted to human capital accumulation and collaborative partnerships to maximize the occupational impact of ETC investments.