| Abstract: | In this paper, we integrate two workhorse models in economics: The monopolistic competition model of Dixit and Stiglitz and the search unemployment model of Pissarides. Information and communication technology (ICT) is interpreted as a (i) technical progress in the matching function of the Pissarides labor market search model, where it is increasing the probability of filling a vacancy, and (ii) technical change in the production function of the Dixit-Stiglitz goods market model where it is increasing fixed costs and decreasing variable costs. All effects together, modeled as a permanent once-and-for-all ICT and internet shock, increase the vacancy/unemployment ratio, decrease the long-run equilibrium unemployment rate, and increase wages. |
