Alan Finkelstein Shapiro and Federico S. Mandelman
Working Paper 2019-22
December 2019
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We document a strong negative link between self-employment and the rate of digital adoption by firms in developing and emerging economies. No link between digital adoption and the unemployment rate is found, however. To explain this evidence, we build a general equilibrium search-and-matching model with endogenous labor force participation, self-employment, endogenous firm entry, and information-and-communications technology adoption. The main finding is that changes in the cost of technology adoption per se cannot rationalize the evidence. Instead, changes in firms' barriers to entry directly linked to the cost of technology adoption are key to explain the data.
JEL classification: E24, J23, J24, J64, O14
Key words: Information-and-telecommunications-technology capital (ICT), digital adoption, automation, labor search frictions, unemployment, self-employment, endogenous firm entry, developing and emerging economies
https://doi.org/10.29338/wp2019-22
The authors thank Mitali Das and Benjamin Hilgenstock for very generously sharing their dataset on routine task intensity measures for developing and emerging economies. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.
Please address questions regarding content to Alan Finkelstein Shapiro, Department of Economics, Tufts University, Braker Hall, 8 Upper Campus Road, Medford, MA 02155, Alan.Finkelstein_Shapiro@tufts.edu, or Federico S. Mandelman, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, NE, Atlanta, GA, 30309, federico.mandelman@atl.frb.org.
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