Abstract
We examine how the distribution of worker earnings growth shifts
following major technological advances by the firm, or its competitors,
using administrative data from the US. Specifically, we find that own firm
innovation is associated with a modest increase in worker earnings
growth, while innovation by competing firms is related to lower future
worker earnings. Importantly, these earnings changes are
asymmetrically distributed across workers: both gains and losses are
concentrated on a subset of workers, which implies that the distribution
of worker earnings growth rates becomes more right- or left-skewed
following innovation by the firm, or its competitors, respectively. These
effects are particularly strong for the highest-paid workers. Our results
suggest innovation is associated with a substantial increase in the labor
income risk, especially for workers at the top of the earnings distribution.
Our simulations reveal that the increased disparity in innovation
outcomes across firms in the 1990s can account for a significant part of
the rise in income inequality. In sum, our evidence is consistent with the
view that innovation leads to substantial reallocation in labor income
across workers through creative destruction in the product market and
displacement of their human capital.