ICT and optimal unemployment benefits when Pissarides meets Dixit–Stiglitz

Abstract

Information and communication technology (henceforth abbreviated to ICT) has changed life considerably in several areas. Here we emphasize just two of them, the goods market and the labour market. Autor (2001) has discussed the effects of ICT on the US labour market extensively, and Ziesemer (2003) describes the impact on the European labour market and some of the goods market effects. We briefly summarize both now. In the 1980s public employment services improved data banks and search techniques by introducing computer-aided job search. In the 1990s this was extended to include the use of the Internet. In short, search technologies in the labour market have been improved. In the goods market, computers first allowed for just-in-time systems and more recently the Internet has been used to reduce the bureaucracy of firms and to provide advertisements for cars, both reducing fixed costs, facilitating the buying of intermediates and thereby reducing variable costs. In economic theory the improvements in labour market search can be captured as a gain in the efficiency of a matching function as used in Pissarides’ (2000) model. The reduction in variable costs and increase in fixed costs through the use of the Internet can be captured as technological substitution1 in the Dixit–Stiglitz (1977) model. Therefore we present in section 11.2 a brief summary of a synthesis of the models by Pissarides and Dixit–Stiglitz as developed in Ziesemer (2003) for the market equilibrium. In this chapter we look also at the central planners’ optimum and compare it to the market equilibrium with a special emphasis on the effects of ICT, monopoly power and bargaining power. The economy as modelled in this