How do Firms Respond to Cheaper Computers ? Microeconometric Evidence for France Based on a Production Function

We implement an original method based on the estimation of a production function, toinvestigate how the decrease in the cost of computers has affected the marginal cost of firms,their aggregate labor demand and their skill structure. Using a panel of more than 5000French firms followed between 1994 and 1997, we find that the effects of the decrease in theprice of computers have been large both in terms of marginal cost reduction and in terms ofskill structure, although these effects exhibit some heterogeneity across firms. In particular,skill substitution effects have been larger in manufacturing industries.