Technological Transitions with Skill Heterogeneity across Generations

98 Pages Posted: 3 Jan 2020

See all articles by Rodrigo Adao

Rodrigo Adao

University of Chicago - Booth School of Business

Martin Beraja

University of Chicago

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 31, 2019

Abstract

Why are some technological transitions particularly unequal and slow to play out? We develop a theory to study transitions after technological innovations driven by worker reallocation within a generation and changes in the skill distribution across generations. The economy’s transitional dynamics have a representation as a q-theory of skill investment. We exploit this in two ways. First, to show that technology-skill specificity and the cost of skill investment determine how unequal and slow transitions are by affecting the two adjustment margins in the theory. Second, to connect these determinants to measurable, short-horizon changes in labor market outcomes within and between generations. We then empirically analyze the adjustment to recent cognitive-biased innovations in developed economies. Strong responses of cognitive-intensive employment for young but not old generations suggest that cognitive-skill specificity is high and that the supply of cognitive skills is more elastic for younger generations. This evidence indicates that cognitive-biased transitions slowly unfold over many generations. As such, naively extrapolating from observed changes at short horizons leads to overly pessimistic views about their welfare and distributional implications.

Suggested Citation

Adao, Rodrigo and Beraja, Martin and Pandalai-Nayar, Nitya, Technological Transitions with Skill Heterogeneity across Generations (December 31, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-147. Available at SSRN: https://ssrn.com/abstract=3512984 or http://dx.doi.org/10.2139/ssrn.3512984

Rodrigo Adao (Contact Author)

University of Chicago - Booth School of Business ( email )

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United States

HOME PAGE: http://www.rodrigoadao.com

Martin Beraja

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

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