BIASED TECHNOLOGICAL SHOCKS, RELATIVE WAGE RIGIDITIES AND LOW-SKILLED UNEMPLOYMENT

ABSTRACT The contrast between the evolution over the last decades of the European Union (EU) and the US unemployment rates, especially for the low‐skilled, is well known. A consensus view is that these different outcomes can be explained by the interactions between common shocks and specific institu...

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Bibliographic Details
Published in:Scottish journal of political economy 2008-07, Vol.55 (3), p.330-352
Main Authors: Pierrard, Olivier, Sneessens, Henri R.
Format: Article
Language:English
Subjects:
Comparative analysis
Europe
Labour economics
Macroeconomics
Skilled workers
Technological change
U.S.A
Unemployment
Unskilled workers
Wage rigidity
Wage structure
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Summary:ABSTRACT The contrast between the evolution over the last decades of the European Union (EU) and the US unemployment rates, especially for the low‐skilled, is well known. A consensus view is that these different outcomes can be explained by the interactions between common shocks and specific institutional setups. In this paper, we emphasize the interactions between technological changes and wages rigidities. We construct a fully calibrated general equilibrium model with two types of jobs and two types of workers, and with search unemployment. Our simulations show that with wage rigidities, technological changes suffice to generate a continuous rise in the low‐skilled unemployment rate and an almost unchanged high‐skilled unemployment rate. Without wage rigidities, the unemployment rates remain unchanged but the wage dispersion widens.
ISSN:0036-9292
1467-9485
DOI:10.1111/j.1467-9485.2008.00456.x