Research

The Second Industrial Revolution sparked a wave of new products and industrial processes, fueling an optimistic Roaring Twenties. But did excitement about technological progress contribute to an over accumulation of investment, despite a slowdown in new product development and satiated demand during the 1920s? And, was this over investment worsened by continuous process innovation? 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 can help explain the Great Depression. The answer is yes.

Population aging may affect aggregate productivity not only by shrinking the labor force, but also by shifting its skill composition in ways that hinder the adoption of frontier technologies. This paper studies whether younger workers have a comparative advantage in operating new technologies and quantifies the aggregate implications of that mechanism. Using matched employer-employee data and establishment surveys from Germany, we show that firms with younger workforces are significantly more likely to adopt advanced digital and automation technologies. Following adoption, employment expands disproportionately through the hiring of younger workers, who also report larger productivity gains from new technologies. Motivated by this evidence, we develop a model of firm dynamics with labor market frictions and multidimensional worker skills. Younger workers have a comparative advantage in tech-oriented tasks, while older workers are relatively more productive in experience-oriented tasks. Firms endogenously choose whether to adopt frontier technologies,and population aging affects firm dynamics and aggregate productivity by changing the skill mix of the workforce. Going forward, we plan to calibrate the model to study how the projected decline in labor-force growth affects productivity and labor market outcomes, and to evaluate policies that shape workforce composition.