Technological Innovation and Labor Income Risk

Leonid Kogan, Dimitris Papanikolaou, Lawrence Schmidt and Jae Song ()

No 26964, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E24 G10 G12 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-ino, nep-lab and nep-mac
Note: AP CF EFG PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Technological Innovation and Labor Income Risk (2020)
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