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Macroeconomic Effects of Technological Transition
Macroeconomic Effects of Technological
Transition
F. Collard, P. Fève & F. Portier
April, 03, 2008
Macroeconomic Effects of Technological Transition
Motivation
Plan
Motivation
The model
Quantitative Evaluation
results
Reinforcing Network Effects : Ultra broadband
results
Macroeconomic Effects of Technological Transition
Motivation
Motivation
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New technologies such as Ultrabroadband technologies are
“General Purpose Technologies”
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Dramatic change of technology at the aggregate level
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Magnified by network effects such technologies trigger
Usually : More capital intensive =⇒ Potential Macroeconomic
effects
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Aggregate productivity (and growth)
Sectoral allocation of resources
(Un–)Employment
Welfare
This paper investigates this issue
Macroeconomic Effects of Technological Transition
Motivation
Motivation
I
Develop a macroeconomic model of technological change
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Growth model with technology adoption
Features
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Several sectors
Capital accumulation
Frictions on the labor market : Unemployment
Endogenous technology adoption
Network effects
Estimate the model and derive quantitative implications
Macroeconomic Effects of Technological Transition
The model
Plan
Motivation
The model
Quantitative Evaluation
results
Reinforcing Network Effects : Ultra broadband
results
Macroeconomic Effects of Technological Transition
The model
The Model
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Dynamic General Equilibrium model
3 kinds of agents :
1. Households (consume, save supply labor)
2. Firms (Produce goods, use capital and labor, decide on
technology)
3. Government (unemployment spells)
Macroeconomic Effects of Technological Transition
The model
The Model : Households
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Continuum of households with finite (but uncertain) lifetime
(Constant Population)
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Beginning of each period, told whether he/she will survive
(prob 1-ψ)
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If drawn, he/she will be employed and will get the wage, if not
will be unemployed and will get unemployment spells.
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Decide on consumption and labor supply so as to maximize
expected lifetime preferences
Ut =
∞
X
s=0
s
s
ρ (1 − ψ) log(ct+s ) +
∞
X
s=1
ρs ψ(1 − ψ)s−1 log(dt+s )
Macroeconomic Effects of Technological Transition
The model
The Model : Firms
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2 types of firms
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Those producing “intermediate” goods in each sector by
means of capital and labor.
Those producing the final good, Yt , by combining intermediate
goods
! ε1
n
X
1−ε ε
Yt =
ζi Qi,t
i=1
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the final good can be consumed or invested to form capital
Kt+1 = It + (1 − δ)Kt
Macroeconomic Effects of Technological Transition
The model
The Model : Sectoral Firms
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n sectors with a representative firm that produces a specific
good by means of capital and labor
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May use 2 technologies
αi
Q1,i,t = Ki,t
(Θt Li,t )1−αi
βi
Q2,i,t = Φi,t Ki,t
(Θt Li,t )1−βi
where 0 6 α 6 β 6 1. Θt : Harrod neutral technological
progress
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Φt > 0 measure the differential productivity b/w the 2
technologies
Macroeconomic Effects of Technological Transition
The model
The Model : Sectoral Firms
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Either, the old technology is implemented :
αi
(Θt Li,t )1−αi
Qi,t = Q1,i,t = Ki,t
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Or only the new technology is implemented :
βi
Qi,t = Q2,i,t = Φi,t Ki,t
(Θt Li,t )1−βi
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Or a technology mix (Partial Adoption)
Qi,t = (σi,t Ki,t )αi (νi,t Θt Li,t )1−αi +Φi,t ((1−σi,t )Ki,t )βi ((1−νi,t )Θt Li,t )1−βi
Macroeconomic Effects of Technological Transition
The model
The Model : Sectoral Firms
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Evolution of Differential productivity
ϕ
Φi,t = γi,t
Φi,t−1
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A stochastic rate of technology improvements
(
γϕ
with proba.πt
ϕ
i
γi,t
=
0
with proba.1 − πt
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Time–varying probability
πt = ρπ πt−1 + π ? (ς k,t ) with |ρπ | < 1
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Network effects
1
π ? (ς k,t ) = (1 − $0 )ς k,t − ς 1+$
+ $0 with $0 , $1 > 0
k,t
Macroeconomic Effects of Technological Transition
The model
The Model : Sectoral Firms
Technology Adoption
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Firms decides on capital, labor, vacancies posting labor and
technology maximizing profits
pq,i,t Qi,t − pk,i,t Ki,t − Wi,t Li,t
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Technology adoption depends on prices, and the capital labor
ratio in each sector
Macroeconomic Effects of Technological Transition
The model
Technology Adoption
yt
q2,t
q1,t
k t (Φt )
k t (Φt )
kt
Macroeconomic Effects of Technological Transition
The model
Technology Adoption
yt
q2,t
q1,t
k t (Φt )
k t (Φt )
kt
Macroeconomic Effects of Technological Transition
The model
The Model : Labor Market
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Assumption : It is costly to find a job (worker) or fill a
position (firms)
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Captured by the so–called “matching function”
ζ
1−ζ
Lt = M (U t , V t ) ≡ m0 U t V t
avec 0 < ζ < 1
Beyond the control of any economic agent.
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Creates congestion externalities, and unemployment.
Macroeconomic Effects of Technological Transition
The model
General Equilibrium
An equilibrium of this economy is a sequence of prices
∞
{Pt }∞
t=0 = {rt , Wt , pk,t }t=0 and a sequence of quantities
∞
{Qt }∞
t=0 = {ct , dt , at , Ct , At , It , Kt+1 , Yt , Θt Lt , σt , νt }t=0 such
that
∞
(i) Given {Pt }∞
t=0 , {Qt }t=0 solves the household program ;
∞
(ii) Given {Pt }∞
t=0 , {Qt }t=0 solves the program of each firm ;
∞
(iii) Given {Qt }∞
t=0 , {Pt }t=0 clear the markets
(iv) Equilibrium unemployment
Macroeconomic Effects of Technological Transition
Quantitative Evaluation
Plan
Motivation
The model
Quantitative Evaluation
results
Reinforcing Network Effects : Ultra broadband
results
Macroeconomic Effects of Technological Transition
Quantitative Evaluation
Quantitative Evaluation
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Quantitative Evaluation on the French economy, 3 main
sectors (Agriculture, Manufacturing, Services)
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Preferences : Calibrated using previous studies
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Labor market : Match the situation of the labor market in the
pre 1979 era
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Old technology : Match some ratios for the pre 1979 era
(WN/Y , K /Y . . .)
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New Technology : Estimation
Macroeconomic Effects of Technological Transition
Quantitative Evaluation
Quantitative Evaluation
Structural Parameters
Θ = ($0 , $1 , ρ, ∆, γiϕ , βi ; i = 1, . . . , N)
Simulated data
s
ςei,t
(Θ)
Share of sector i in GDP
yi,t
min
Θ
S
T
N
1 XXX s
(e
ςi,t (Θ) − ςi,t )2
ST s=1 t=1
i=1
Macroeconomic Effects of Technological Transition
results
Plan
Motivation
The model
Quantitative Evaluation
results
Reinforcing Network Effects : Ultra broadband
results
Macroeconomic Effects of Technological Transition
results
Evolution of Sectoral Shares
Agriculture
Industrie
5.5
Services
35
80
5
4
3.5
Pourcentage
Pourcentage
Pourcentage
75
4.5
30
25
70
65
3
2.5
1980
1990
Années
2000
20
1980
1990
Années
2000
60
1980
1990
Années
2000
Macroeconomic Effects of Technological Transition
results
Evolution of Sectoral Shares
Role of Network Effects
Agriculture
Industrie
5.5
Services
35
75
4.5
Pourcentage
Pourcentage
Pourcentage
5
30
25
70
65
4
3.5
1980
2000
2020
Années
20
1980
2000
2020
Années
60
1980
2000
2020
Années
Macroeconomic Effects of Technological Transition
results
Evolution of GDP
Niveau
Taux de croissance
1.5
0.06
0.05
1
0.04
0.03
0.5
0.02
0.01
0
1980
1990
2000 2010
Années
2020
0
1980
1990
2000 2010
Années
2020
Macroeconomic Effects of Technological Transition
results
Evolution of probability
Probabilité
Taux d’adoption
0.8
1.5
Pourcentage
Pourcentage
0.6
0.4
1
0.5
0.2
0
1980
1990
2000 2010
Années
2020
0
1980
1990
2000 2010
Années
2020
Macroeconomic Effects of Technological Transition
results
Evolution of Sectoral Productivity
Industrie
Agriculture
Services
0.15
0.03
0.08
0.1
0.02
0.06
0.05
0.01
0.04
0
0
0.02
−0.05
1980
2000
2020
Années
−0.01
1980
2000
2020
Années
0
1980
2000
2020
Années
Macroeconomic Effects of Technological Transition
results
Evolution of Labor Markets
Agriculture
Industrie
Pourcentage
Pourcentage
2
1.5
1
0.5
1980
80
40
75
35
30
25
2000
2020
Années
Services
45
Pourcentage
2.5
20
1980
70
65
60
2000
2020
Années
55
1980
2000
2020
Années
Macroeconomic Effects of Technological Transition
results
Evolution of Labor Markets
Taux de chômage
Emploi vacants
7
0.015
Pourcentage
Pourcentage
6
5
4
0.01
3
2
1980
1990
2000 2010
Années
2020
0.005
1980
1990
Tension (V/U)
1.6
1.4
Pourcentage
0.6
Pourcentage
2020
Salaire
0.8
0.4
0.2
0
1980
2000 2010
Années
1.2
1
0.8
1990
2000 2010
Années
2020
1980
1990
2000 2010
Années
2020
Macroeconomic Effects of Technological Transition
results
Welfare
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Potential Tradeoffs
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Accumulate vs Consumption
Short run/long–run (e.g. unemployment)
But in this case : Strong productivity effects due to network
externality
Ut (Ct )
6.432178
Ut (CtNo )
6.211738
x
0.246625
Macroeconomic Effects of Technological Transition
Reinforcing Network Effects : Ultra broadband
Plan
Motivation
The model
Quantitative Evaluation
results
Reinforcing Network Effects : Ultra broadband
results
Macroeconomic Effects of Technological Transition
Reinforcing Network Effects : Ultra broadband
Stronger Network Effects
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Reinforce network effects
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increase π1 such that probability increase by 20% at peak
Macroeconomic Effects of Technological Transition
Reinforcing Network Effects : Ultra broadband
Evolution of probability
Probabilité
Taux d’adoption
0.8
1.5
Pourcentage
Pourcentage
0.6
0.4
1
0.5
0.2
0
1980
1990
2000 2010
Années
2020
0
1980
1990
2000 2010
Années
2020
Macroeconomic Effects of Technological Transition
Reinforcing Network Effects : Ultra broadband
Evolution of Sectoral Shares
Agriculture
Industrie
Pourcentage
Pourcentage
5
4.5
4
3
1980
80
30
75
25
20
3.5
2000
2020
Années
Services
35
Pourcentage
5.5
15
1980
70
65
2000
2020
Années
60
1980
2000
2020
Années
Macroeconomic Effects of Technological Transition
Reinforcing Network Effects : Ultra broadband
Evolution of GDP
Niveau
Taux de croissance
1.5
0.08
0.06
1
0.04
0.5
0.02
0
1980
1990
2000 2010
Années
2020
0
1980
1990
2000 2010
Années
2020
Macroeconomic Effects of Technological Transition
Reinforcing Network Effects : Ultra broadband
Evolution of Labor Markets
Agriculture
Industrie
Pourcentage
Pourcentage
1.2
1
0.8
0.4
1980
75
40
70
35
30
0.6
2000
2020
Années
Services
45
Pourcentage
1.4
25
1980
65
60
2000
2020
Années
55
1980
2000
2020
Années
Macroeconomic Effects of Technological Transition
Reinforcing Network Effects : Ultra broadband
Evolution of Labor Markets
Taux de chômage
Emploi vacants
7
0.02
Pourcentage
Pourcentage
6
5
4
3
0.015
0.01
2
1
1980
1990
2000 2010
Années
2020
0.005
1980
1990
Tension (V/U)
2
Pourcentage
Pourcentage
2020
Salaire
1.5
1
0.5
0
1980
2000 2010
Années
1990
2000 2010
Années
2020
1.5
1
0.5
1980
1990
2000 2010
Années
2020
Macroeconomic Effects of Technological Transition
results
Plan
Motivation
The model
Quantitative Evaluation
results
Reinforcing Network Effects : Ultra broadband
results
Macroeconomic Effects of Technological Transition
results
Concluding remarks
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Introduction of new technologies usually thought of as
Harmful for employment and welfare
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Show that this is not the case when it is associated with
strong productivity effects
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Particularly true with strong network effects