Can Innovation Revitalize Texas’s Job Market? 

Houston employers, which are more focused on oil and gas than some others in the state, have shed 5,500 jobs so far in 2016. So far, those layoffs have been more than offset by hiring in other Texas regions and sectors. For instance, as noted in a previous blog post, the technology job market in Texas is thriving. Undeniably, however, the oil and gas bust has significantly slowed state job growth. Begging the question, what mechanisms can assist in spurring job creation?

Research and development (R&D), for one, can have a substantial impact on the labour market. Essentially, American businesses of all sizes depend on research and development (R&D) to create new and better products and services that allow them to grow and meet the needs of their customers. Furthermore, for the United States to remain competitive in the global marketplace, an investment in R&D that keeps businesses growing, innovating, and hiring employees in the U.S is required.

Indeed, there is no short of economic studies which show that productivity gains and innovation leads to more jobs.  For example, economists at the Federal Reserve write that, “Productivity grew noticeably faster than usual in the late 1990s, while the unemployment rate fell to levels not seen for more than three decades.” Likewise, in a definitive review of the studies on productivity and employment, the OECD’s Jobs Study: Facts, Analysis, Strategy report stated that, “Technology both eliminates jobs and creates jobs. Generally it destroys lower wage, lower productivity jobs, while it creates jobs that are more productive, high-skill and better paid. Historically, the income-generating effects of new technologies have proved more powerful than the labor-displacing effects: technological progress has been accompanied not only by higher output and productivity, but also by higher overall employment.”

Furthermore, there have been numerous research studies into how R&D investment, specifically, helps develop new products and knowledge that drives growth, creates jobs, and improves the national welfare. For instance, a recent study by Huo (2015) revealed that each 1 percent increase in R&D expenditure in the United States raises its employment rate by 0.38 percent. Earlier research by Bogliacino and Vivarelli (2012) also found that R&D expenditure, which fundamentally fosters product innovation, has a job-creating effect.

Ultimately, with unemployment mounting in the oil and gas industry, a focus on the best policies to boost U.S. job growth is certainly warranted. As noted above, R&D in particular can have substantial impact on job creation. Nonetheless, access to finance remains a key bottleneck for companies that are undertaking research and development. As a result, majority of the governments around the world incentivise start-ups to undertake R&D activities through tax breaks. In the United States, the government offers a federal Research and Development (R&D) tax credit and this tax scheme can lead to serious savings on firm’s investments. The credit is offered at both a state and federal level in Texas, and companies can claim each one concurrently. Contact Texas Tax Credit today to find out if your research could qualify for tax benefits.