Tech booms, easy financing linked to skilled worker wage loss

A working paper from the BIS and Atlanta Fed reveals that high-skill workers who joined the information and communication technology (ICT) sector during the late 1990s boom experienced significant long-term earnings losses.

Using French matched employer-employee data from 1994 to 2015, researchers Johan Hombert and Adrien Matray found a 7 percent wage discount fifteen years out for the 'boom cohort' (1998–2001), equivalent to two years of human capital accumulation.

This discount was observed despite higher entry wages and was robust to various controls, including capital income.

The study attributes this to accelerated skill obsolescence, not worker selection or the subsequent bust.

Crucially, financing during the boom disproportionately flowed to firms whose workers would later experience the largest productivity declines, amplifying the negative effect on aggregate human capital accumulation.

The paper provides strong evidence for the skill obsolescence channel, where rapid technological change during intense experimentation accelerates human capital depreciation.

Using USPTO patent data, the authors confirmed that ICT technologies during the boom showed higher experimentation and obsolescence.

The wage discount was concentrated among workers in sectors where technologies became obsolete faster.

This effect was also observed predominantly in high STEM-intensity industries and among STEM workers, like software developers, whose skills are directly linked to evolving technologies.

Non-STEM workers, whose human capital is less tied to firms' technologies, did not experience a similar wage trajectory.