Fast and Slow Technological Transitions

EMPCT Working Paper Series No. 2025-02
74 pages | PDF Download | PDF in Browser

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Citation:
Adão, Rodrigo, Martin Beraja, and Nitya Pandalai-Nayar, “Fast and Slow Technological Transitions”, February 2024

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Abstract
Do economies adjust slowly to certain technological innovations and more rapidly to others?
We argue that the adjustment is slower when innovations mainly benefit production
activities requiring skills which are more different from those used in the rest of the economy.
The reason is that, when such skill specificity is stronger, the adjustment of labor markets
is driven less by the fast reallocation of older incumbent workers and more by the gradual
entry of younger generations to the benefitted activities. We begin by documenting that the
U.S. labor market adjusted differently to the arrival of Information & Communications Technologies
(ICT) in the late twentieth century than it did to innovations in manufacturing at the
beginning of that century. We then build an overlapping generations model of technological
transitions. It allows us to sharply characterize the effects of skill specificity on equilibrium
dynamics, match the evidence in a parsimonious way, and study its welfare implications. We
show that stronger skill specificity helps to explain why the ICT transition was more unequal
and slower, driven entirely by the gradual entry of younger generations who accrued more of
the welfare gains from ICT innovations.