Économie et Statistique n° 355-356 Business - Trade - Population Forecasts
Companies and the drop in computer prices
Companies have benefited from sharp drops in IT equipment prices in recent decades. This article sets out to measure the effect of these drops on a set of company characteristics. What is the magnitude of the associated supply shock? How does this change demand for inputs? Are skilled and unskilled workers, in particular, affected in the same way? The method adopted estimates a production function used to calculate the computer price elasticities of the marginal production cost, aggregate demand for labour and the relative demand for skills. Firstly, the drop in computer prices would appear to constitute a considerable supply shock in terms of cutting the marginal production cost. A 15% drop in computer prices (annual average over a long period) hence induces an approximately 0.7% cut in marginal costs when the prices of the other factors are fixed. We then find substantial effects on the demand for factors. The build-up of computers prompted by the fall in their prices would seem to be biased towards capital at the expense of labour, and within this latter area, biased towards skilled labour at the expense of nskilled labour. A 15% drop in computer prices prompts an approximately 3.5% increase in the ratio of skilled to unskilled employment, when the prices of the other factors are fixed. This effect is specific to IT capital: no similar effect is found for the other capital goods. The traditional method of directly estimating the demand for labour with virtually fixed capital produces a much weaker evaluation of the skills bias associated with computers than the approach by production function developed here. Lastly, the effects found on both the marginal cost and the relative demand for skills seem to be stronger in the manufacturing industry than in services.