Abstract

We investigate how incumbent workers’ careers respond to the increasing competition of graduates with more technologically advanced IT skills during a period of accelerating technological change. We identify a supply shock of more technologically advanced IT-skilled graduates by exploiting a reform of a German training regulation, a reform mandating all new apprentices in a large manufacturing occupation to acquire in-depth IT skills. The results show that even young incumbents experienced long-lasting earnings losses in the form of lower wage growth after the IT-skilled graduates entered the labor market. A detailed analysis of the mechanisms suggests that incumbents forwent promotions and technologically advanced IT-skilled graduates crowded incumbents out of their occupation. However, despite losing their occupation, incumbents experienced relatively little unemployment during the transition period following the reform and on average resumed stable careers in other occupations and sectors.