A Theory of Technology Diffusion

What determines the speed of the technology diffusion? What are the consequences of diffusion? This paper presents a model to address these questions. Skilled machine-users adopt a new technology first, while unskilled users wait until machines become more reliable and accessible. The quality improvement of machines is the engine of diffusion, and it is carried out by the machine producer. The speed of diffusion is affected by the skill distribution in the economy. At any point in time, the machine producer can start producing a new generation of machines. The timing of this event is influenced by the skill distribution.Technology Diffusion; Skill; Quality Improvement; Learning by Using; R&D; Innovation

On the Establishment Dynamics in the United States and Japan

This paper compares the establishment-level dynamics of the United States and Japan. I find that there are substantial differences in entry and exit behavior, the average size of establishments, and the amount of job reallocation. First, entry and exit rates are much lower in Japan. Second, the average size of establishments is much smaller in Japan, while the average size of opening/closing establishments are similar in the U.S. and Japan. Third, the amount of job creation and job destruction is much smaller in Japan, especially for continuing establishments. I first examine whether these differences are accounted for by sectoral compositions, and find that the differences in sectoral composition do not explain these facts. Then I construct a general equilibrium industry dynamics model and explore the roles of various frictions in generating these differences. The model experiments suggest that in Japan, there may be important impediments for establishment entry/exit and there may be factors impeding productive establishments from growing larger.Establishment Dynamics, Sectoral Composition, Industry Dynamics Model, Reallocation

On the Establishment Dynamics in the United States and Japan

This paper compares the establishment-level dynamics of the United States and Japan. I find that there are substantial differences in entry and exit behavior, the average employment size of establishments, and the amount of job reallocation. First, entry and exit rates are much lower in Japan. Second, the average size of establishments is much smaller in Japan, while the average sizes of opening/closing establishments are similar in the United States and Japan. Third, the amount of job creation and job destruction is much smaller in Japan, especially for continuing establishments. I first examine whether these differences are accounted for by sectoral compositions, and find that the differences in sectoral composition do not explain these facts. Then I construct a general equilibrium industry dynamics model and explore the roles of various frictions in generating these differences. The model experiments suggest that in Japan there may be important impediments for establishment entry/exit and there may be factors impeding productive establishments from growing larger.Establishment dynamics; Sectoral composition; Industry dynamics model; Reallocation

Rosenberg's "Learning by Using" and Technology Diffusion

This paper formulates Rosenberg's (1982) "learning by using" as a stochastic process. The producer of machines learns from the experience of users. Due to this learning, the quality of machines improves over time. It turns out that the process of this improvement approximately takes an exponential form. This improvement process, combined with the growth of demand due to the improvement, can produce an S-shape diffusion curve of machines. Strong demand and advancement of communication technology increase the diffusion speed. The distributional property of the stochastic process and the implications for inequality across machine users are also explored.Learning by Using, Technology Diffusion

Costs of Business Cycles for Unskilled Workers

This paper reconsiders the cost of business cycles under market incompleteness. Primarily, we focus on the heterogeneity in the cost among different skill groups. Unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers. Moreover, unskilled workers earn less income, which limits their ability to self-insure. We examine how this heterogeneity in unemployment risk and income translates into heterogeneity in the cost of business cycles. We find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers.Cost of Business Cycles, Incomplete Markets, Skill and Unemployment

Why Did the Average Duration of Unemployment Become So Much Longer?

This paper examines the causes of the observed increase in the average unemployment duration over the past thirty years. First we analyze if changes in the demographic com- position of the U.S. labor force can explain this increase. In particular, we examine how much of the observed change can be explained by the change in age and gender compo- sition. We then consider institutional changes, such as the change in the generosity and coverage of unemployment insurance. Changes in the composition of the labor force and institutional changes can only partially account for the observed increase in the duration of unemployment. We construct a job search model and calibrate it to the U.S. data. The results indicate that more than 70% of the increase in the duration of unemployment over the last thirty years can be explained by an increase in within-group wage inequality.Unemployment Duration, Demographic Change, Within-Group Wage In-equality, Job Search Model

Entry, exit and plant-level dynamics over the business cycle

This paper analyzes the implications of plant-level dynamics over the business cycle. We first document basic patterns of entry and exit of U.S. manufacturing plants, in terms of employment and productivity between 1972 and 1997. We show how entry and exit patterns vary during the business cycle, and that the cyclical pattern of entry is very different from the cyclical pattern of exit. Second, we build a general equilibrium model of plant entry, exit, and employment and compare its predictions to the data. In our model, plants enter and exit endogenously, and the size and productivity of entering and exiting plants are also determined endogenously. Finally, we explore the policy implications of the model. Imposing a firing tax that is constant over time can destabilize the economy by causing fluctuations in the entry rate. Entry subsidies are found to be effective in stabilizing the entry rate and output.Business cycles ; Manufacturing industries

Evaluating the Effects of Entry Regulations and Firing Costs on International Income Differences

This paper analyzes the effects of entry regulations and firing costs on cross-country differences in income and productivity. We construct a general equilibrium industry- dynamics model and quantitatively evaluate it using the cross-country data on entry costs and firing costs. Entry costs lower overall productivity in an economy by keeping low- productivity establishments in operation and making the establishment size inefficiently large. Firing costs lower productivity by reducing the reallocation of labor from low- productivity establishments to high-productivity establishments. The linear regression of the data on the model prediction accounts for 27% of the cross-sectional variation in total factor productivity. Moving the level of entry costs and firing costs from the U.S. level to that of the average of low income countries (countries with a Gross National Income below 2% of the U.S. level) reduces TFP by 27% in the model without capital, and by 34% in the model with capital and capital adjustment costs.Entry cost, firing cost,international income differences,industry dynamics

Job duration and match characteristics over the business cycle

Short-Term Research Collaboration Program at Singapore Management Universit

Is Labor Supply Important for Business Cycles?

We build a general equilibrium model that features uninsurable idiosyncratic shocks, search frictions and an operative labor supply choice along the extensive margin. The model is calibrated to match the average levels of gross flows across the three labor market states: employment, unemployment, and non-participation. We use it to study the implications of two kinds of aggregate shocks for the cyclical behavior of labor market aggregates and flows: shocks to search frictions (the rates of job finding and job loss) and shocks to the return on the market activity (any factors affecting aggregate productivity). We find that both kinds of shocks are needed to explain the labor market data, and that an active labor supply channel is key. A model with friction shocks only, calibrated to match unemployment fluctuations, accounts for only a small fraction of employment fluctuations and has counterfactual cyclical predictions for participation.