R&D and Unemployment, a controversial relationship

Well, now that we are in the Age of the Scissor, maybe it is good to take a look at one possible correlation, and it is the correlation between two very important variables:

– Unemployment Rate: The information for this was taken from EuroStat, and the data represents the situation in 2011.

– R&D Investments: But this information is tricky. In order to measure the effort of investment in R&D the private effort must be taken into consideration, not only the public budget. This is because each country has different ways of promoting investment (direct funding, tax conditions…), plus private companies can obtain indirect R&D budget from other sources (like the EU Commission). This way, the only way to make this information comparable is considering the whole effort. For this reason, the final figures are measured as percentage of GDP, but do not represent the % dedicated to R&D activities in the public budget. This data is obtained from OECD.

The comparison is made between the unemployment situation in 2011 and the R&D investments in 2008. Why is this? Well, spending money in R&D does create high quality jobs immediately (at a much better ratio per € than bailing out banks, for sure), but it is true that the investment in R&D is oriented to make the economy of the country more competitive for the future. For this reason we compare the policy of 2008 (at the beginning of the crisis), with the current situation of unemployment.

And let’s see what we found. First, let’s take a look at the map of unemployment (2011)

It is a well known map nowadays, so I guess it is not worthy to go very much in detail into it. Now, let’s take a look at the map of R&D investment (2008), expressed in % of GDP, as explained before.

I guess it does not come as a big surprise to see that there is a relationship  between both maps. There are some exceptions that are worth to comment. In Eastern Europe, and more particularly in Poland, it does happen that a very low investment in R&D is not followed by a high unemployment rate. This is probably due to the expansive moment of the economy in Poland, where many infrastructures are now being built. That kind of sounds like Spain in the early years of the XXIst century. Did anybody said “construction bubble”? The case of Norway may also call the attention, but it does make sense in a country with an economy inflated by the public use of oil, the investment necessary is very low compared with the very high GDP, and hence the percentage. These two explanations are just speculative hypothesis, and I have no data to back this up.

And finally, a chart to see the correlation (if any)

In this case the correlation is opposite, meaning that a high degree of correlation will imply both lines crossing. Well, the conclusion is now up to the reader. The interesting part now would be to make another study, correlating the effort to bail out the banks and the relationship with the unemployment rate. Just to see what is better to create jobs, if bailing out the banks or investing in R&D.

Finally, if you want to check the data used for these charts:

https://docs.google.com/spreadsheet/ccc?key=0Ak7EK2e-pEhBdGZzNlQtdWFCX1VubkFncXlnUWRaT0E#gid=10

  1. Pingback: R&D and Unemployment | multibancos.es

  2. prou!

    Biased. In Spain you bail out banks because they gone bakrupt. Nothing to do with unemployment rate. In fact banks have been bailed out as well in the USA, the Netherlands or even Germany.

    • Sagas

      I don’t understand. The article is not about bailing out banks, but about the relationship between R&D investment and Unemployment. What is exactly biased there?
      The comment about banks in the article says that investing in R&D create more direct jobs per € than bailing out banks. This is obvious, since bankers make more money than scientist. Anyway, back to the article, what is biased? How it wouldn’t be biased?

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