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Innovation Booms, Easy Financing, and Human Capital Accumulation

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Abstract

Innovation booms are often fueled by easy financing, allowing new technology firms to pay high wages that attract skilled labor. Studying the information and communication technology (ICT) boom in the late 1990s, we show that high-skill workers who joined the ICT sector during the boom experienced sizeable long-term earnings losses. These earnings patterns stem from accelerated skill obsolescence rather than worker selection or the subsequent bust in the ICT sector. Moreover, during the boom, financing disproportionately flowed to firms whose workers would later experience the largest productivity declines, amplifying the negative effect of labor reallocation on aggregate human capital accumulation.

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  • Johan Hombert & Adrien Matray, 2026. "Innovation Booms, Easy Financing, and Human Capital Accumulation," FRB Atlanta Working Paper 2026-8, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:103489
    DOI: 10.29338/wp2026-08
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    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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