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Wage inequality and unemployment with overeducation

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A skill-biased change in technology can account at once for the changes observed in a number of important variables of the US labour market between 1970 and 1990. These include the increasing inequality in wages, both between and within education groups, and the increase in unemployment at all levels of education. In contrast, in previous literature this type of technology shock cannot account for all of these changes. The paper uses a matching model with a segmented labour market, an imperfect correlation between individual ability and education, and a fixed cost of setting up a job. The endogenous increase in overeducation is key to understand the response of unemployment to the technology shock.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 938.

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Date of creation: Jan 2006
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Handle: RePEc:upf:upfgen:938

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Web page: http://www.econ.upf.edu/

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Keywords: Unemployment; wage premium; overeducation; SBTC;

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  7. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
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