Information technologies and the

The reduction in transaction costs and improved efficiencies in match mak-ing provided by information technologies increases the demand for expert services which further increases the returns to education and widens the earnings gap.

Abstract

The evolution in the role of middlemen has many important implications at the macro-economic level as well. In many markets, the negative employment effects of labor-saving technologies are offset by increases in the demand for labor as transaction costs fall and additional labor is needed to produce more goods and services. As discussed above, middlemen operate successfully in markets when private transactions are costly and inefficiencies exist. Many traditional aspects of this role are being replaced by information technologies. Generally, information technologies are a close substitute for match-making services, but are less suited for reducing privately held asymmetric information. The reduction in transaction costs and improved efficiencies in match mak-ing provided by information technologies increases the demand for expert services which further increases the returns to education and widens the earnings gap. The widening should be greatest in industries that concentrate on match-making services such as real estate, however a widening is likely to be present in most sectors. Middle-men with expertise beyond match making will remain viable, while those lacking value-adding expertise will be rapidly marginalized.