October 2006

IZA DP No. 2379: Telecommunications Dynamics, Output and Employment

In EU countries, opening up of telecommunications markets and regulations have helped to reduce the price of digital services which is an important quasi-input factor in all firms. Integrating the use of telecommunications in a macroeconomic production function is the analytical starting point for our interdependent analysis of output, use of telecommunications and employment. Based on unit root and co-integration analysis as well as an error correction three-equation model which are estimated simultaneously, we present results both on long run links and short run links between telecommunications, output and employment. Considering various scenarios suggests that a fall in the relative price of telecommunications can generate a cumulated employment increase of 760,000 within seven years in Germany. The institutional setup for regulating telecommunications could be improved in Germany and other EU countries.