Dimitris Papanikolaou, Professor of Finance, Northwestern University: Technological Innovation and Labor Income Risk

Time: 2021-10-06 10:08 Print

Topic: Technological Innovation and Labor Income Risk

Speaker: Dimitris Papanikolaou, John L. and Helen Kellogg Professor of Finance, Kellogg School of Management, Northwestern University

Date: October 13, 2021 (Wednesday)

Time: 11:30-13:00

Location: 4-101

Language: English



Using administrative data from the United States, we document novel stylized facts regarding technological innovation and the riskiness of labor income. Higher rates of industry innovation are associated with significant increases in labor earnings for top workers. Decomposing this result, we find that own firm innovation is associated with a modest increase in the mean, but also variance, of worker earnings growth. Innovation by competing firms is related to lower, and more negatively skewed, future earnings. We construct a structural model featuring creative destruction and displacement of human capital that replicates these patterns. In the model, higher rates of innovation by competing firms increases the likelihood that both the worker and the incumbent producer are displaced. By contrast, a higher rate of innovation by the worker’s own firm increases profits, but is a mixed blessing for workers, as it increases odds that the skilled worker is no longer a good match to the new technology. Estimating the parameters of the model using indirect inference, we find significant welfare losses and hedging demand against innovation shocks. Consistent with our model, we find that these left tail effects are more pronounced for process improvements, novel innovations, and are concentrated in movers rather than continuing workers.


About the Speaker:

Dimitris Papanikolaou is the John L. and Helen Kellogg Professor of Finance at the Kellogg School of Management and a Research Associate of the National Bureau of Economic Research. His research has primarily focused on the interaction between technological innovation and financial markets. Recent work has focused on the displacement of human capital, the market for corporate executives, and the causal impact of financial frictions on innovation and employment. His work has been published in the Quarterly Journal of Economics, the Journal of Political Economy, the Journal of Finance, the Review of Financial Studies, and the Journal of Financial Economics and his papers have won several research awards, including the Anundi Smith Breeden prize (twice) for the best paper in the Journal of Finance. He currently serves as a Co-Editor of the Journal of Financial Economics. He previously served as an Associate Editor at Management Science, the Journal of Finance, and the Review of Financial Studies. He received his Ph.D. in Financial Economics from the Massachusetts Institute of Technology.