Get to know Stone Centre PhD scholar Eric Klemm

Eric Klemm received a Stone Centre PhD scholarship in 2024. His main research interests are in labor economics. His current research focuses on the role of technology and demographic change in shaping wages, employment and inequality. We spoke with Eric to find out how the scholarship helped him, and what he's been up to since.

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How did you become involved with the Stone Centre?

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I applied for the Stone Centre PhD Scholarship in 2024. The Centre’s focus fits closely with the questions I work on, so I was very happy to get selected.

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What did you study for your PhD?

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I am completing a PhD in Economics at University College London and I am on the academic job market this year.

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How did the Stone Centre PhD scholarship help you?

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The scholarship made a real difference. The partial teaching buyout gave me more uninterrupted time for research in the crucial year before the job market. The funding supported conference visits, equipment, and several research trips needed to access confidential microdata outside the UK. The Stone Centre community was a key part of the support I received. The monthly breakfast is a great place to hear ongoing work, and I had the chance to present there once. Outside those meetings, people are consistently open to discussing research, especially Imran and Wendy, which is very valuable. I can only recommend applying.

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What have you done since your scholarship?

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The scholarship ended in October, and I have spent the past months preparing for the job market and finalising my research papers.

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My job market paper Early Retirement, Capital Adjustment, and Technology Adoption studies what happens to firms’ capital and technology adoption when they unexpectedly lose older experienced workers in the context of a pension reform. Older workers are often viewed as less productive or less adaptable, suggesting their exit would allow firms to invest in new technologies. But they also hold valuable, firm-specific knowledge of production processes. This tacit knowledge is typically transferred before planned retirement, which makes it difficult to isolate and measure empirically.

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I study a natural experiment in which this knowledge transfer was disrupted: a 2014 German Pension reform that lowered the early retirement age by up to 29 months, bringing forward the exit of long-tenured workers in a way that left firms little margin to prepare. Firms exposed to the reform reduced capital accumulation, postponed technology adoption, and later saw declines in revenue and value-added. Negative results are concentrated in smaller firms with fewer than 60 employees. To interpret these findings, I develop a stylized model in which older workers transfer uncodified knowledge that is essential for maintaining legacy capital and integrating new technologies. The model predicts, and the data confirm, that unexpected retirements weaken firms’ ability to sustain production and slow the pace of technological upgrading.

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In a separate paper with Christian Dustmann and Takahiro Toriyabe, we analyze the sources of cross-sectional and lifecycle inequality using a lifecycle earnings process that incorporates earnings mobility and non-employment risk across cohorts and over time. Our estimates show that shifts in unobserved skill prices and increases in the variance of individual fixed effects across cohorts account for most of the rise in inequality in Germany in recent decades. This implies that the widening dispersion in earnings associated with persistent labor-market differences across workers has become a more important determinant of lifecycle inequality. Put differently, successive birth cohorts already enter the labor market with a larger share of their eventual inequality effectively predetermined at entry, reducing earnings mobility. To account for the widening distribution of fixed effects, we interpret them within a Roy framework as realized productivity driven by both ability and task allocation. Our evidence indicates that technological change magnifies inequality not only through the standard skill-price channel but also by steepening the mapping from ability to productivity through within-occupation task sorting.

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What do you plan to do in the future?

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I plan to keep developing the part of my research that examines inequality. One current project studies wage and earnings dynamics for immigrants and natives over the lifecycle using German administrative data. Immigrants face larger but less persistent shocks and more early-career non-employment, while differences in permanent earnings components are limited. One avenue I intend to develop further is how firms’ investment choices and the amount and types of capital different groups of workers effectively operate with produce divergent earnings paths.

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