Driving innovation: Public policy and human capital

Abstract Human capital, the set of skills, knowledge, capabilities and attributes embodied in people, is crucial to firms’ capacity to absorb and organize knowledge and to innovate. Research on human capital has traditionally focused on education and training. A concern with the motivationally-relevant elements of human capital such as employees’ job satisfaction, organizational commitment, and willingness to change in the workplace (all of which have been shown to drive innovation), has often been overlooked in economic research and by public policy interventions to date. The paper addresses this gap in two ways: First, by studying firms’ human resource systems that can enhance these elements of human capital, and second, using the results of this research as a springboard for a public policy program targeted at elements of human capital that have been ignored by traditional education and training interventions. Using a sample of 1070 employee-managers in Ireland, we apply a series of probit regressions to understand how different human resources systems influence the probability of employee-managers reporting the motivationally-relevant elements of human capital. The research: (1) Finds that respondents in organizations with certain human resource systems are more likely to report motivationally-relevant elements of human capital. Specifically, employee-managers in organizations with proactive work practices and that consult with their employee-managers increase the predicted probability of reporting that they are satisfied with their job, willing to change, and are committed to the organization; (2) Highlights the need to consider the role of policy interventions to support the motivationally-relevant elements of human capital; (3) Proposes a new policy program offer to support the motivationally-relevant elements of human capital in order to increase firms’ innovation activity.