Labor Supply and Directed Technical Change: Evidence from the Termination of the Bracero Program in 1964

Abstract

This paper studies the impact of labor supply on the creation of new technology, exploiting a large exogenous shock to the US agricultural labor supply caused by the termination of the Bracero agreements between the US and Mexico at the end of 1964. Using a text-search algorithm allocating patents to crops, I show a negative labor-supply shock induced a sharp increase in innovation in technologies related to more affected crops. The effect is stronger for technology related to labor-intensive production tasks. Farm-value dynamics indicate that, despite the positive technology reaction, the policy change was undesirable for farm owners. (JEL J22, J43, N32, O33, O34, Q12, Q16)