Abstract

Using administrative data on the careers of French employees, our study reveals a long-term reduction in the salaries of graduates who began their careers in the information-technology and communications sector during the tech boom at the end of the 1990s. Even though when they were hired they benefited from salaries that were around 5% higher on average than those of graduates at the same level in other sectors, their salaries grew less, and, after 15 years, were around 6% lower. It seems that the human capital these workers developed at the beginning of their careers depreciated rapidly. This shows that beginning a career during a technological boom can have negative consequences over the long term.
Johan Hombert and Adrien Matray, Technology Boom, Labor Reallocation, and Human Capital Depreciation, CEPR Discussion Paper No. DP14136, November 2019.

What interested you about the evolution of salaries in the tech sector?

Many young graduates are attracted to the tech sector. This choice pays off in the short term: people with digital competencies are much sought-after by companies. On the other hand, it’s not clear whether this choice is the right one over the long term. To find out, I decided to focus on the last tech boom: the Internet bubble at the end of the 1990s. I worked with Adrien Mattray (H.10), a professor at Princeton University. We studied highly qualified employees of dot-com companies who began their careers between 1998 and 2001. We compared the progression of their salaries with that of people holding similar posts in other sectors. Consistent with the lack of sufficient qualified talent during the boom, these tech graduates earned more at the start of their careers. Over time, though, the gap between the two groups became smaller, until the curves crossed in 2005. The gap between the two then continued to get wider until the tech graduates were earning less than their counterparts, experiencing wage growth of less than 11% on average.

How do you explain this weak salary growth?

The phenomenon does not seem to be linked to companies’ performance and it is not limited to France. Our hypothesis is that the competencies of qualified professionals in a tech sector in a boom period depreciate quickly as a result of the speed at which technologies evolve. Their wage discount is linked to the obsolescence of their technical skills. Indeed, people with sales or managerial positions in these same high-tech companies do not suffer this weak salary growth.

Should students be discouraged from focusing on information technologies?

No, of course not. On the contrary, the competencies acquired during one’s studies, and then at one’s first jobs, are essential. In particular, this fundamental knowledge depreciates less rapidly than more specialized knowledge. It’s better to develop an understanding of the theory behind machine-learning algorithms than to be an expert on this or that software that implements these algorithms. Software and algorithms are constantly evolving, but they are always based on the same scientific principles.

entrepreneuriat - Johan

Johan Hombert
A graduate of École Polytechnique and with a doctorate in economics from the Toulouse School of Economics, he focuses his research on innovation, entrepreneurship and life insurance. His work has been published in various international finance and economics reviews, including the Journal of Finance and the Review of Financial Studies.

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