Working Paper: CEPR ID: DP2614
Authors: Avner Ahituv; Joseph Zeira
Abstract: This Paper claims that technical progress induces early retirement of older workers. It supports this claim both theoretically and empirically. We present a model where part of human capital is technology-specific, so that technical progress erodes some existing human capital. This affects mostly older workers, who do not learn the new technology, since their career horizon is short. As a result their participation in the labour force declines. We find strong support to this erosion effect in US data, which shows that labour supply of older workers is negatively related to technical progress across sectors. Unlike the cross-section effect, the model is ambiguous about the aggregate effect of technical progress on labour participation of older workers. While in sectors with many innovations it falls due to erosion of human capital, in other sectors it increases due to higher wages. To examine which effect dominates, we run a time series test and find that the effect of average technical progress on aggregate labour force participation by the old is negative. Namely, the erosion effect dominates.
Keywords: human capital; labour force participation; technical progress
JEL Codes: J24; J26; O15; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technical progress (O49) | Erosion of technology-specific human capital (J24) |
| Erosion of technology-specific human capital (J24) | Reduced labor force participation among older workers (J26) |
| Technical progress (O49) | Reduced labor force participation among older workers (J26) |
| Erosion of technology-specific human capital and wage effect (J24) | Labor supply of older workers (J26) |
| Technical progress (O49) | Early retirement among older workers (J26) |
| Technical progress (O49) | Overall negative impact on labor participation by older workers (J26) |
| Wage effect increases participation in less innovation sectors (J29) | Labor participation of older workers (J26) |