Technology Adoption over the Life Cycle and Aggregate Technological Progress

Technology becomes useful only when individuals adopt it for productive activity. The manner in which adoption occurs is therefore important for a complete understanding of the evolution of technological change. We study a model with exogenously occurring technological progress and endogenous adoption of it. Individuals with N-period lives optimally allocate their time between leisure, work and adoption of new technology. We show that optimal behavior is characterized by a sequence of four phases of life which, described in their order of occurrence, are: (1) adoption only (schooling); (2) work and adoption (career path); (3) work but no adoption (end-of-work-life easing); (4) no work or adoption (retirement). The presence of the third phase, a period in which older workers choose not to adopt new technology, has several implications for the effects of changes in aggregate exogenous technology. Among these is the implication that a wave of innovation will have a smaller effect when the number of workers in this phase is relatively large. This is tested using patent data as a proxy for innovation and the Solow residual as a measure of technological progress; some support for this proposition is found. The model also implies that older (third phase) workers will appear more productive because each hour of non-leisure time will be devoted entirely to productive work, rather than being divided between work and technology adoption time. The data provides some support for this proposition as well: measured productivity is positively correlated with the relative size of the oldest cohort of workers.