ICT as Technical Change in the Matching and Production Functions of a Pissarides-Dixit-Stiglitz model

In this paper we integrate two workhorse models in economics: Themonopolistic competition model of Dixit and Stiglitz and the search unemploymentmodel of Pissarides. Information and communication technology (ICT) is interpretedas i) technical progress in the matching function of the Pissarides labour marketsearch model where it is increasing the probability of filling a vacancy, and ii) astechnical change in the production function of the Dixit-Stiglitz goods market modelwhere it is increasing fixed costs and decreasing variable costs. All effects together,modelled as a permanent once-and-for-all ICT and Internet shock, increase thevacancy/ unemployment ratio, decrease the long-run equilibrium unemployment rate,and increase wages. Keywords: ICT, Monopolistic competition, unemployment.