Fast and Slow Technological Transitions

Do economies adjust slowly to certain technological innovations and more rapidly to others? We argue that the adjustment is slower when innovations mainly benefit production activities requiring skills that are more different from those used in the rest of the economy. When such skill specificity is stronger, the adjustment of labor markets is driven less by the fast reallocation of older incumbent workers and more by the gradual entry of younger generations. We first document that the US labor market adjusted differently to early twentieth-century manufacturing innovations than to recent information and communication technologies (ICTs). We then build an overlapping-generations model of technological transitions and characterize how skill specificity affects equilibrium dynamics. Skill specificity helps explain why the ICT transition was slower, driven entirely by the entry of younger generations.