Innovation Systems: Education & Workforce Development

The single biggest determining factor of the success and future prosperity of a place is how well its population is educated (Barro, 2001; Clarke et al, 2013). That is because the more educated and skilled a workforce is, the more able it is to generate new ideas and technologies, bring them to the market and adapt and absorb new technologies. Thus the more educated a place is, the more capabilities it has to innovate, create new and higher-paid jobs and grow economic prosperity (Barro, 2001; Clarke et al, 2013).

As the global economy has shifted to knowledge-based industries, the jobs that pay the best go to those with the highest levels of education and skill.  Analysis of the geography of innovation has also shown us that innovation tends to be clustered in locations that offer diverse employment opportunities and are home to higher-skilled employees (Henry-Nickie & Sun, 2019).

Links to growth

The more educated and skilled a workforce is, the more able it is to generate new ideas and technologies, and adapt to and absorb innovations throughout the economy and society (Cortright, 2017; OECD, 2015). The UK’s City Observatory found that almost two-thirds of the variation in per capita income was directly related to the educational attainment of the population (Cortright, 2017). In particular, the OECD (2015) note that there are several ways that education and workforce development drive innovation and growth, including:

  • Skilled people generate knowledge and innovations;
  • Have more skills and capabilities to adopt and absorb innovations; 
  • Skills to attract other inputs into the innovation process including capital and partnerships;
  • better business acumen to commercialize innovations and establish and grow a firm; and  
  • The more skilled a user/consumer is of a product, the more able they are to provide valuable feedback and innovation on top of the initial innovation.

Education and training

Education and training are becoming ever more critical. Education equips young people with the knowledge, skills and dispositions they need to seek purposeful and meaningful employment. Education and skills training is essential to ensure that people can fully participate in an increasingly dynamic and complex world and contribute to innovations that improve society. In addition, the more educated a society is, the more able it is to be entrepreneurial and have the skills to establish high-growth, high performing firms (Bosma et al. 2011).

Higher education also unlocks opportunities for individuals that support workers to access more diverse employment across many occupations as opposed to being locked into a single sector and role.  At the same time, today’s employers want workers with multi-dimensional skill portfolios, including those with management,  STEM (science, technology, engineering and mathematics) and tech-specific skills (Henry-Nickie & Sun, 2019). 

Creating opportunity employment pipelines requires changes to not only schooling systems but also a ‘learning’ environment to ensure the attainment of education outcomes (Henry-Nickie & Sun, 2019).  In particular, Ra et al. (2019) suggest that  a learning society should prioritise three critical areas of education:

  1. widen the scope of learning opportunities beyond schools and throughout all stages of life, 
  2. prioritise learning in existing and new systems, and 
  3. integrate learning opportunities across stakeholders and sectors.

Skills for success

Firms want the most talented and brightest workers because they know their skill and expertise underpins the business’ competitive advantage and ability to generate profits. Building a competitive advantage is highly dependent on innovation, and innovative solutions are increasingly complex and based on scientific discovery and extensive R&D.  Accordingly, higher-skilled people are better able to generate new knowledge and support the growth and good management of the firm. 

Research shows high skilled workforces have a much greater impact on innovation but also job creation (What Works Centre for Local Economic Growth, 2019; Cortright, 2017; Delgado & Mills, 2018; Mc Andrew, 1995; Moretti, 2012). For example, the What Works Centre for Local Economic Growth, (2019) notes that in the UK “skilled jobs or jobs in high-tech industries generate larger multipliers” with an additional 1.9 – 2.5  jobs created in the non-tradable sector. In comparison, Moretti estimates that a technology job in the US can generate 4.9 other jobs.

Softer skills are also vital for innovation performance. These skills that relate to business acumen, entrepreneurialism and new ways of working, and are just as essential as formal education and training (Commonwealth of Australia, 2015; Lin et al., 2013). Differences in managerial quality explain as much as one-third of cross-country differences in productivity and firm profitability and survival rates are also associated with good management practices (Grover, 2019).

Structural change

The rise of technology is now having a real impact on the business models, supply chains and changing customer demands and behaviour, and are putting significant pressure on workforces and firms (PwC, 2015).  Megatrends such as automation, artificial intelligence, robotics, new business structures and globalisation are changing the nature of jobs and the skills employers require. As the impact of technology on the production of goods and services grows, it is estimated that around 44 per cent of Australian jobs will be affected (Hajkowicz et al., 2016). 

In fact, 75 per cent of the fastest-growing occupations are dependent on STEM skills (Commonwealth of Australia, 2015 and PwC, 2015). The Department of Jobs and Small Business (2019) research also shows that between “November 2013 and November 2018, employment in STEM occupations grew by 16.5 per cent, which is 1.6 times higher than the growth rate in non-STEM jobs”. As a result, there will be fewer and fewer jobs that do not require higher technical qualifications (Hajkowicz et al., 2016). 

Not only is this trend picking up speed, but Australia’s education and skill outcomes also are not keeping pace with many Asian economies that are investing heavily in their higher- workforce skills (Department of Jobs and Small Business, 2019; Hajkowicz et al., 2016; PwC, 2015).  A 2014 Australian Industry Group survey of workforce development needs, reported that almost 44 per cent of employers continue to experience difficulties recruiting STEM qualified technicians and trade workers. With the main barriers cited as a lack of relevant qualifications (36 per cent) and a lack of employable skills and work experience (34 per cent) (Commonwealth of Australia, 2015).

To remain competitive, to ensure access to high-quality education and lifelong training to ensure economic reliance and competitiveness into the future (Hajkowicz et al., 2016).  Innovation policy must not only address education gaps and skill shortages; but also promote STEM capabilities and softer skills such as entrepreneurial and management skills. 

Finally, rising demand for high skills combined with “a shrinking shelf life” of specific skills means that today’s workforce need to be encouraged and able to access continuous learning. Moreover, new modes of learning delivery and trends in the workplace demand self-directed learning for which learnability will be crucial (Ye, 2020). 

Innovation Systems – Science and R&D

The relationship between science and innovation is widely recognised as an essential component of effective innovation systems and a driver of economic prosperity (OECD, 2015). Good ideas and concepts do not magically become fully blown commercial and investable products. Instead in today’s increasingly complex and global world, new technologies, products and services are built upon research, data and analysis, prototyping, laboratory and field testing often in universities and public research institutes. Most innovations will also apply existing technologies and use various ICT platforms and infrastructures, sometimes taking several generations to succeed.

Governments invest in research and development (R&D) through a number of mechanisms with the expectation that scientific discovery and new technologies will create new knowledge, new production processes and products benefit future generations (Commonwealth of Australia, 2015). Furthermore, science and research remains the catalyst to tackling global challenges such as climate change and poverty.


Knowledge comes from two fundamental sources. The first being education, that is, understanding what already exists. The second source is research, activities taken to acquire new knowledge (Gruber & Johnson 2019). Thus science and research are about extending the knowledge base and developing knowledge to answer specific questions. 

Innovation and technology are often used interchangeably, however they are not the same thing. Innovation is about applying that knowledge within the context of environmental, business and social systems to solve problems (Howard Partners, 2018). Technology is often a commercial outcome of innovation, science and R&D (that is knowledge), and changes the way things are done (The Economist, 2013).  Innovation can be intangible and does not require technology, while technology is the application of innovation as a tangible product. 

Growing importance

Today innovation and technology development is becoming more complex and is increasingly based on science and R&D undertaken in both public and private institutions in fields such as environmental, physics, biomedical, life sciences, technology, engineering, and mathematics (STEM) and the application of design and design thinking (Commonwealth of Australia, 2015). In fact, Sainsbury (2020) notes that there have been no major technology advances in the last past fifty years that were not based upon scientific discoveries. 

In particular, public research plays a key role in innovation systems by providing new knowledge and pushing the knowledge frontier. Universities and public research institutions often undertake longer-term, higher-risk research and complement the research activities of the private sector. At the business level, investment by firms in to R&D have been shown to have a 20-30 percent return on investment in the long run (Frontier, 2014). Gruber & Johnson (2019) note that the spillovers from R&D generate enormous social returns, more than 50 percent per dollar, each year.

Market failure

At the current rate of global innovation, more and more funding needs to be dedicated to R&D just to maintain productivity (Gruber & Johnson, 2019). However, the full extent of the contribution of science and technology is not easily visible to those outside the process. Accordingly, it can be under-invested in by both governments and the private sector and the diffusion of research and innovation can remain trapped in institutions (Commonwealth of Australia, 2015). In fact, without government policy and investment, there are five main market failures when it comes to investment in science and R&D, these include:

  1. firms are unable to or underinvest in next-generation technology due to the substantial capital investment and R&D time required;
  2. SMEs are less likely to identify and work form partnerships (such as suppliers, customers competitors, universities, research institutions and government entities) to tackle complex and commercialise innovation;
  3. underinvestment by both public and private organisations in public/quasi goods such as science, technology platforms and infrastructure that have benefits for society and support the private sector can innovate on top of due to the cost and lack of clarity around roles;
  4. it can be hard to identify pathways to commercialise publicly-funded research within universities and research institutions;
  5. there is no market incentive for firm level R&D findings and learnings, including negative outcomes, to be shared to stimulate spillovers and to learn for approaches that have not worked (Gruber & Johnson 2019; Open Science, 2020, and Sainsbury, 2020). 

Phases of the R&D Cycle

In order to address market failures and capitalise on the economic prosperity generated by science and R&D, it is essential to understand the phases to the R&D cycle, which make it so valuable. These include:

  1. Scientific research – considered a pure public good as it usually involves the discovery of new laws of nature and cannot be patented. Scientific research is mostly undertaken by public organisations and universities through funded activity such as “R&D applied research and technology work, grants to encourage research for advancement of knowledge or grants to obtain the knowledge needed for government missions such as health or defence” (Sainsbury, 2020). 
  2. Generic technologies  are technologies that can affect an entire society such as the steam engine, the internet, GPS and electricity. These technologies come about when scientific research is turned into generic technology that can be applied pre-competitively to a number of industries or inform subsequent R&D by the private sector (Garnsey & Maine, 2006). Investment in general technologies is considered a quasi-public good as it helps to de-risk “major investment barriers to the emergence of radical new technologies” (Sainsbury, 2020).  
  3. Proprietary research is a private good and undertaken by the private sector. Priority research leverages existing knowledge and is de-risked sufficiently to allow the private sector to earn a return on investment in a sufficient time frame.
  4. Industrial and infra-technologies are digital technologies with physical infrastructure to deliver efficient, connected, resilient and agile services. Infra-technologies include ICT, waste, energy generation and distribution and new digital health services (Fawkes, 2019). These technologies provide a platform for further innovation. However, they require standardisation, and regulation, may have several technical and functional interfaces to enable wide economic utility. As a result they can be under-investment by the private sector and need to be heavily invested in government by the government (Sainsbury, 2020).