New Technology and Labour Markets: Entrants, Outsourcing, and Matching

26 Pages Posted: 28 Feb 2004

See all articles by Ashima Goyal

Ashima Goyal

Indira Gandhi Institute of Development Research (IGIDR)

Date Written: August 2005

Abstract

The impact of new technology (ICT) on labour markets and welfare is analyzed in a model of matching. First, ICT lowers cost and speed of market access, thus reducing frictions in matching a searching worker to an opportunity. It raises output and lowers the cost of entry for a new firm. The rise in scale of aggregate employment raises productivity. Second, since the net effect of ICT raises the probability of a successful search by workers relative to a successful search by firms, workers share of the match surplus rises. Third, it induces more learning and innovation. Fourth, ICTs allows hitherto excluded segments to access new networks. This reduces the ability of members of an existing network to extract the entire surplus from a new entrant. Finally, it encourages cumulative improvements in technology and skills. More labour-using technological progress is induced. Multiple equilibria are possible, however, due to endogenous choice of training and technology. Therefore investment in training and technology may be at less than socially optimal levels. Policy implications follow.

Keywords: Outsourcing, distance labour, matching, technology, multiple equilibria

JEL Classification: J41, J61, O33

Suggested Citation

Goyal, Ashima, New Technology and Labour Markets: Entrants, Outsourcing, and Matching (August 2005). Available at SSRN: https://ssrn.com/abstract=509322 or http://dx.doi.org/10.2139/ssrn.509322

Ashima Goyal (Contact Author)

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
+91 22 28400920 (Phone)
+91 22 28402752 (Fax)

HOME PAGE: http://www.igidr.ac.in/~ashima

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