The Role of the Education System and On-the-Job Training in Innovation: Evidence from the Slovenian Manufacturing and Service Sector

This paper contributes to the debate on the importance of education for sustainable economic growth. Following a recent contribution by Aghion (2009), we focus on the role of tertiary education in innovation at the company level using patent applications as a proxy. Rather than examining tertiary education spending or the share of the population with tertiary education, we make use of the Aghion Index, which measures the quality of tertiary education. Moreover, as innovation is only the first step in the value chain at the company level, we complement data on the quality of tertiary education with company-level data on human capital spending in large and medium-sized Slovenian firms. We report that not only a sound education system, but also on-the-job training is important for increased company-level invention and innovation. Firms with more on-the-job training reported a significantly higher number of patents in the period of 2007-2009.