This paper studies the employment effects of technological change when benefits are endogenous. If the (i) level of welfare aid depends on the general income level in the economy and (ii) wages for unskilled workers cannot fall below the level of welfare aid, there is a link between the wage for unskilled labor and the productivity of skilled labor. An increase in the latter will lead to an increase in average income and hence the level of welfare aid. This in turn leads unions to ask for higher wages for unskilled workers. Technological change is shown to have employment effects (only) if it is skill-biased and if this link exists.
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Paper provided by Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim in its series MEA discussion paper series with number
04043.
Length: Date of creation: 22 Jan 2004 Date of revision: Handle: RePEc:mea:meawpa:04043
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Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
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