Low-skilled unemployment, capital-skill complementarity and embodied technical progress

Abstract

Models developed by recent economic literature do not manage to account simultaneously for the three main stylized facts observed in many EU countries since the mid-seventies: (i) the increase in the overall unemployment rate; (ii) the difference between high-skilled and low-skilled unemployment; (iii) the stability of relative wages. This paper focuses on these issues. We construct an intertemporal general equilibrium model seeking to reproduce these facts. We consider two types of jobs and two types of workers. We allow for job competition between high-and low-skilled workers on the low-skilled segment of the labor market and for on-the-job search. Matching processes are represented by matching functionsà la Pissarides. Low-skilled search intensities are endogenous and high-skilled workers decide on the amount of effort they devote to search in each labor market segment. Biased technological change is introduced via embodied technical progress and capital-skill complementarity. The model is calibrated and simulated to evaluate the impact of various types of shocks. The model reproduces quite well the unemployment rate changes and the relative wage stability observed over the past two decades.

Assessing the effect of trade and FDI on growth-unemployment nexus

“…The more educated a person is, the better job that person can get, and the better job an individual has, the fewer chances of being unemployed. It is noted that economic progress affects low-skilled and highskilled unemployment differently: low-skilled unemployment increases while high-skilled unemployment decreases (Moreno-Galbis & Sneessens, 2007). Askenazy et al (2015) examined the relationship between educational level-specific unemployment and GDP growth and found that highereducated employees tend to experience a more negligible effect on unemployment from output fluctuations.…”

“…Another important aspect of the growthunemployment nexus is associated with education. It is noted that economic progress affects low-skilled and high-skilled unemployment differently: low-skilled unemployment increases while high-skilled unemployment decreases (Moreno-Galbis & Sneessens, 2007).…”

Labour Market Institutions and Technological Employment

“…The development of all this empirical literature has been accompanied by a strand of theoretical papers providing some macro and micro foundations. From a macroeconomic point of view, Moreno-Galbis and Sneessens (2007) present a general equilibrium model with heterogeneous jobs and workers in order to analyse the relationship between the diffusion of ICT and the rise in low-skilled unemployment during the period 1975 to 2000. Ngai and Pissarides (2007) develop a multi-sector model of growth with differences in the total factor productivity (TFP) growth rates across sectors.…”

Does the Growth Process Discriminate Against Older Workers?

“…The effect of growth on the employment rate of heterogeneous agents has traditionally been analyzed using theoretical or empirical frameworks where the source of heterogeneity arises from the individual's skill level (see for example Berman, Bound, and Griliches (1994), Machin and Van Reenen (1998) or Moreno-Galbis and Sneessens (2007)). However, to our knowledge, there are few studies analyzing whether a given individual is equally exposed to the consequences of growth along her life-cycle 6 .…”