policymakers demonstrate

Innovation and Growth: The Schumpeterian Perspective 43
The intuition is simply that when the rate of job destruction is small, then
innovation is the main source of job destruction and job destruction is immediate,
whereas job creation happens later due to the labour market frictions.
Prediction 17 When the rate of exogenous job destruction is high, then the
relationship is negative growth and unemployment: in this case the job creation
effect of innovation-led growth on unemployment dominates the job destruction
effect.
This framework is used by Aghion et al. (2015b) to analyse the relationship
between innovation-led growth and well-being. On the one hand, more creative
destruction implies more job destruction, which should reduce well-being
of currently employed workers. On the other hand, more creative destruction
implies both more new job creation and a higher growth rate, both of which
should be welfare-enhancing.
1.4 Enhancing Productivity Growth in Advanced Countries
1.4.1 Pillars of Innovation-Led Growth
In the previous section we explained why institutions and policies to enhance
productivity growth should differ between countries at the world technology
frontier and countries that are farther behind the frontier. In particular we saw
that competition is more growth enhancing in sectors or countries that are closer
to the technological frontier. Similarly, Aghion et al. (2005b) show that more
flexible labour markets (which facilitate the process of creative destruction)
foster greater productivity growth in more advanced countries.
A third lever of productivity growth in advanced countries is graduate education:
indeed frontier innovation requires frontier researchers and therefore
good universities and research centres, whereas good undergraduate education
is sufficient for imitation. Figure 1.2, drawn from Aghion et al. (2009c). Shows
that research education enhances productivity growth more in more frontier
US states, that is, in states with a higher per capita GDP (California, Massachusetts,
…): these are states where a higher fraction of firms are ‘frontierfirms’,
that is, firms with levels of productivity that are close to the best practice
in the corresponding sector. On the other hand, two-year college education
is what enhances productivity growth more in less advanced states (Alabama,
Mississippi, …): in those states, imitation (i.e., catch-up growth) is the main
source of technological progress, and good undergraduate education enhances
imitation. The same is true across countries: higher (and especially graduate)
education enhances productivity growth more in countries with higher per
capita GDP (see Vandenbussche et al., 2006).