Innovation Booms, Easy Financing, and Human Capital Accumulation
79 Pages Posted: 14 Jun 2018 Last revised: 9 Sep 2023
Date Written: September 7, 2023
Innovation booms are often fueled by easy financing that allows new technology firms to pay high wages that attracts skilled labor. Using the late 1990s Information and Communication Technology (ICT) boom as a laboratory, we show that skilled labor joining this new sector experienced sizeable long-term earnings losses. We show these earnings patterns are explained by faster skill obsolescence rather than either worker selection or the overall bust in the ICT sector. During the boom, financing flowed more to firms whose workers would experience the largest productivity declines, amplifying the negative effect of labor reallocation on aggregate human capital accumulation.
Keywords: Innovation booms; Dot-Com Bubble; Human Capital
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