Estimating the impact of innovative human capital on firm-level innovation

Innovation is a well-recognised determinant of growth in firms, regions and the economy as a whole. Many studies focus on tangible conditions and factors related to innovation, including human capital. Human capital is an essential part of innovation and is traditionally measured by a uni-dimensional approach: the tangible elements of education and training. Increases in levels of education, especially in developed countries, are causing uncertainty about the competitive advantage afforded by the traditional measure of human capital. From the literature presented in this thesis, it is also evident that such measures of human capital are limited, and a more encompassing measure and concept of human capital is called for. To overcome these limitations and address the lack of a holistic measure of human capital in the literature, this research extends the traditional measure by developing a unique and far-reaching concept of Innovative Human Capital (IHC). The novel and multi-dimensional IHC concept encapsulates four elements of the individual employee-manager: the tangible and standard measures of educational attainment and training, as well as the intangible and more innovative elements of willingness to change in the workplace and job satisfaction. Using Ireland as a laboratory, the analysis creates a new multi-level dataset from four sources. This rarely-used combination of micro (firm) level data with regional data allows for empirical analyses on the effect of the holistic IHC concept on firms’ innovation activity. In addition, the research examines factors that may be causally connected to IHC at regional and firm level; specifically, regional entrepreneurship activity and workforce diversity, along with firms’ work practices and work arrangements. The research highlights the importance of extending the measurement of human capital; it finds elements of IHC as significant contributors to firm- level innovation, particularly for small firms (<50 employees). The related estimations also find internal (firm) factors more significant than external (regional) factors in the case of all four elements of IHC, to varying degrees. From a policy perspective, the research explores current innovation policies and programmes from a number of developed economies to assess the effectiveness of these policies and programmes in promoting IHC. In line with current Irish policy to promote innovation, job creation, and economic growth, and in an attempt to operationalise the valuable concept of IHC in support of innovation, a new policy offer is proposed. The new suite/combination of programmes (offer) is designed to encourage and incentivise firms to promote IHC as a competitive resource and determinant of innovation. The research argues that firms and policy makers who consider human capital through a holistic lens (comprising the tangible and intangible elements of the individual) may enhance return on investments, and likewise support a valuable competitive advantage for innovation.