*Submitted ** Supersedes my job market paper 'Growth and Labor Reallocation: Vertical versus Horizontal Innovation'
Presented in Society for Economic Dynamics Meeting 2021 (Minneapolis), Chicago-Fed Fellow Seminar 2021, and European Winter Meetings of the Econometric Society 2021 (Barcelona), Canadian Economic Association Meeting 2022 (Ottawa)
I study the relationship between long-run growth and labor reallocation when incumbent producers both innovate over their previous products (own-product improvements) and expand to new product markets (product expansion). I calibrate a quality ladder model of endogenous growth with an establishment panel survey data that distinguish different innovation types. I discover that own-product improvements account for 90% of productivity growth and 81% of the welfare gains from faster growth after R&D incentives. Since own-product improvements have smaller effects to reallocate labor between establishments, despite an increase in growth rates, labor reallocation rates barely change in response to R&D incentives.
This paper measures innovation on tools used by different occupations and studies its impact on the increasing skill premium. First, we match the description of tools from Wikipedia with patent text data using textual analysis to measure the innovation on tools. Then, we study its relation with the labor market variables at the occupation level. We find 1) innovation on tools grew more in skill-intensive occupations. 2) it is positively associated with wage and employment growth across occupations. 3) it is positively correlated with the skill premium and skill intensity growth within each occupation. Motivated by this reduced-form evidence, we build a model where tool innovation increases the demand of occupations, potentially more for skilled workers. Parameters are estimated through the Generalized Method of Moments. We find that tool innovation accounts for 61% of the total demand factor that contributed to the skill premium increase in 1980-2015.
Work in Progress
Age Sorting in the Labor Market [slides] joint with Toshiaki Komatsu
We examine the interaction between the aging labor force and declining business dynamism. Using matched employer-employee data from Germany, we document the patterns of age sorting between firms and workers, where younger firms hire disproportionately more younger workers. We find that such patterns are not fully explained by sorting based on firm productivity or other observables, such as industry and geographic locations. We then construct a directed search model that features both worker life-cycle and firm life-cycle. The model generates age sorting when younger firms face higher uncertainty about their future productivity. As a result, younger firms are more likely to direct their search toward younger workers who have a higher uncertainty tolerance with longer life spans. Lastly, we take the calibrated model to quantify the impacts of the aging labor force and firm on the labor market outcomes of the current young population. We find that changes in firm entry rates and population structure generate a significant decrease in employment rates among the younger population while increasing employment rates among the older population.