Classifying the Relationship of Unemployment and Economic Complexity Based on the Innovation Level

Replacement of labourers by robots and automation has been one of the oldest concerns in the labour market, and many people have attributed rising unemployment to the growth of innovation and technology. Some researchers have linked the impact of technology on employment to breadth and depth of markets. Available evidence suggests that the impact of innovation and technology on employment depends on the international competitiveness of countries and the quality of their workforce. Since the economic complexity index measures both exports and the level of available knowledge in economies, it can be a good candidate for considering the breadth and depth of markets. The present study examines the effect of economic complexity on unemployment by controlling for GDP and inflation and asks whether there is a level of innovation determining the relationship between the economic complexity and unemployment. For this purpose, we use a panel threshold regression for a period 2008- 2017. Findings show that the relationship between economic complexity and unemployment is non-linear. Moreover, there is the evidence of substitution of labour by robots when the innovation index is in the range of [0.456, 0.493).