Technology Adoption, Job Matching Frictions and Business Creation
35 Pages Posted: 21 Dec 2012
Date Written: October 1, 2012
We study the impact of a General Purpose Technology that changes the cost structure turning fixed costs into variable ones in most sectors. A major recent example is cloud computing, whose adoption allows firms to avoid large up-front costs in IT and to rent computing capability online. We study the macroeconomic impact of the adoption of such an innovation in a DSGE model with endogenous market structures in the goods market and search and matching frictions in the labor market. To start a business, firms need to hire workers from the pool of unemployed agents and set up a stock of IT capital: the new technology allows them to rent computing capabilities reducing entry costs. Such an innovation can have a substantial impact on business and job creation.
Keywords: Endogenous entry, General purpose technology, Job creation, Search frictions, Cloud computing
JEL Classification: L1, J6, O3
Suggested Citation: Suggested Citation