Working Paper: CEPR ID: DP13984
Authors: Enrico Perotti; Robin Dottling
Abstract: We study long term effects of the technological shift to intangible capital, whose creation relies on the commitment of skilled human capital in firm production. Humancapital cannot be owned, so firms need less financing. Human capital cannot be credibly committed so firms need to reward it by deferred compensation, diluting future profits. As human capital income is not tradeable, total investable assets fall. The general equilibrium effect is a gradual fall in interest rates and a re-allocation of excess savings into rising valuations of existing assets such as real estate. The concomitant rise in house prices and wage inequality leads to higher household leverage.
Keywords: intangible capital; skill premium; knowledge based technological change; human capital; excess savings; mortgage credit
JEL Codes: D33; E22; G32; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transition to intangible capital (E22) | lower need for financing by firms (G32) |
| lower need for financing by firms (G32) | fall in total investable assets (G19) |
| fall in total investable assets (G19) | gradual decline in interest rates (E43) |
| transition to intangible capital (E22) | gradual decline in interest rates (E43) |
| excess savings (E21) | rising valuations of existing assets (G19) |
| rising valuations of existing assets (G19) | gradual decline in interest rates (E43) |
| rise in house prices (R31) | higher household leverage (G59) |
| higher household leverage (G59) | wage inequality (J31) |