Innovation Booms, Easy Financing, and Human Capital Accumulation

Abstract

Innovation booms are often fueled by easy financing, allowing new technology firms to pay high wages that attract skilled labor. Studying the Information and Communication Technology (ICT) boom in the late 1990s, we show that high-skill workers who joined the ICT sector during the boom experienced sizeable long-term earnings losses. These earnings patterns stem from accelerated skill obsolescence rather than worker selection or the subsequent bust in the ICT sector. Moreover, during the boom, financing disproportionately flowed to firms whose workers would later 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