WORKING PAPERS
The Great Accretion and the Great Depression, joint with Hal Cole and Jeremy Greenwood.
Abstract
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.
WORK IN PROGRESS
Rising Idea Complexity and the Organization of Innovation Teams.
Abstract
Innovation increasingly relies on combining specialized and heterogeneous knowledge within teams. This project studies how the growing complexity of ideas has reshaped the organization of invention and its implications for firm performance and labor market dynamics. Using linked patent and employer-employee data for Germany, I construct a novel measure of team-level skill heterogeneity based on inventors’ occupational histories, allowing me to recover the distribution of knowledge within innovation teams. I document a substantial increase in within-team across-individual heterogeneity over time, driven not only by larger teams but, more importantly, by increased sorting of inventors into more diverse teams conditional on team size. I then provide evidence that this rise in heterogeneity reflects complementarities across skills: disruptions to the availability of distinct skill types within teams lead to persistent declines in innovative output and firm performance. Motivated by these findings, I develop a model in which idea complexity increases endogenously along the innovation process. Early innovations rely on a limited set of knowledge components, but as successive advances build on prior discoveries, new ideas increasingly require mastering knowledge drawn from multiple domains. As projects become more complex, firms optimally expand the set of skills within their innovation teams despite span-of-control costs. The model rationalizes the observed rise in team heterogeneity and links it to endogenous changes in the organization of innovation as the technological frontier advances.
Population Aging, Skill Composition and Technology Adoption, joint with Ruben Piazzesi.
Abstract
This paper studies how population aging affects aggregate labor productivity by changing the workforce skill mix. Aging raises accumulated experience, but might reduce the relative supply of current-technology skills that are more prevalent among younger cohorts and may be essential for technology adoption. The net effect is ex ante ambiguous and depends on how firms adjust technology, hiring, and training decisions to an aging workforce. Empirically, we use matched employer-employee data and establishment surveys from Germany to show that firms with younger workforces are significantly more likely to adopt advanced digital and automation technologies. In addition, 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. Skills evolve over workers’ careers: experience accumulates on the job, while current-technology skills can depreciate and be rebuilt through training. 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 decompose the effect of workforce aging on productivity into channels related to firm size, technology selection, and worker reallocation, and to evaluate policies that shape workforce composition.
Stefano Cravero 