Research

We study how workforce age composition shapes firms’ technology choices when younger workers have a comparative advantage in operating newer vintages. We build a firm-dynamics model in a semi-endogenous growth environment: each period, a higher-productivity vintage arrives exogenously, while heterogeneous firms endogenously choose which vintage to operate given labor-adjustment frictions and vintage-specific task intensities. Newer vintages load more on “new skills” tasks. Both young and old can perform all tasks, but the young supply new skills at a lower effective cost. The model predicts that, conditional on firm size and age, (i) firms with younger workforces are more likely to adopt and (ii) adoption raises total employment while gradually tilting the within-firm age mix toward younger workers. We test these predictions by linking firm-level adoption events to matched employer–employee data from Portugal (and prospectively Germany). Firms with younger workforces are ex ante more likely to adopt. Furthermore, event-study estimates show that, around adoption, employment rises and average workforce age falls. These patterns survive after controlling for occupation and education reallocation within firms. Together, the model and evidence imply that demographic aging can slow the diffusion of new technologies even as the frontier advances, dampening aggregate productivity.

The Second Industrial Revolution sparked a wave of new products and industrial processes, fueling the optimism of the Roaring Twenties. But did excitement about technological progress contribute to an over accumulation of investment? And was this over investment worsened by continuous process innovation despite sluggish demand? Could these factors have played a role in triggering the Great Depression? To explore these questions, a macroeconomic model that incorporates both process and product innovation is proposed. Proof-of-concept simulations are performed to assess whether these factors could help explain the Great Depression. The findings suggest that these elements may have played a role in triggering the economic downturn.