Technological Innovation and Labor Income Risk / Leonid Kogan, Dimitris Papanikolaou, Lawrence D. W. Schmidt, Jae Song.

Format:

Book

Author/Creator:

Kogan, Leonid.

Contributor:

National Bureau of Economic Research.

Papanikolaou, Dimitris.

Schmidt, Lawrence D. W.

Song, Jae.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26964.

NBER working paper series no. w26964

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Using administrative data from the United States, we document novel stylized facts regarding technological innovation and the riskiness of labor income. Higher rates of industry innovation are associated with significant increases in labor earnings for top workers. Decomposing this result, we find that own firm innovation is associated with a modest increase in the mean, but also variance, of worker earnings growth. Innovation by competing firms is related to lower, and more negatively skewed, future earnings. We construct a structural model featuring creative destruction and displacement of human capital that replicates these patterns. In the model, higher rates of innovation by competing firms increases the likelihood that both the worker and the incumbent producer are displaced. By contrast, a higher rate of innovation by the worker's own firm increases profits, but is a mixed blessing for workers, as it increases odds that the skilled worker is no longer a good match to the new technology. Estimating the parameters of the model using indirect inference, we find significant welfare losses and hedging demand against innovation shocks. Consistent with our model, we find that these left tail effects are more pronounced for process improvements, novel innovations, and are concentrated in movers rather than continuing workers.

Notes:

Print version record

April 2020.