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Skill mismatch in equilibrium unemployment

Listed author(s):
  • Ronald Bachmann

We analyse the effect of skill mismatch in a search model of equilibrium unemployment with risk-neutral agents, endogenous job destruction, and two-sided ex-ante heterogeneity. First, we examine the interaction of labour market institutions and skill mismatch. We find that skill mismatch changes the results obtained in a model with ex-ante homogeneity. Second, we analyse the interaction of skill mismatch and labour market institutions for the difference in the labour market experience of continental Europe on the one hand and the US on the other hand. We find that within-group skill mismatch cannot explain the rise in unemployment in Europe relative to the US. This result is due to the endogeneity of job destruction and stands at odds with previous findings in the literature. We can, however, confirm the fact that unemployment benefits potentially play a beneficial role by providing a subsidy to search. Generally, we argue that in search models with fixed match characteristics, job destruction should be endogenised in order to take account of heterogeneous decision rules.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2005-034.pdf
File Function: Revised version, 2005
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2005-034.

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Length: 35 pages
Date of creation: Jun 2005
Date of revision: Aug 2005
Handle: RePEc:hum:wpaper:sfb649dp2005-034
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  1. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "Job reallocation, employment fluctuations and unemployment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 18, pages 1171-1228 Elsevier.
  2. Lars Ljungqvist & Thomas J. Sargent, 2004. "European Unemployment and Turbulence Revisited in a Matching Model," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 456-468, 04/05.
  3. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  4. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
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  7. Wouter Den Haan & Christian Haefke & Garey Ramey, 2001. "Shocks and Institutions in a Job Matching Model," NBER Working Papers 8463, National Bureau of Economic Research, Inc.
  8. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 65-96.
  9. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
  10. Pierre Cahuc & Stéphane Carcillo & André Zylberberg, 2014. "Labor Economics," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01076752, HAL.
  11. Robert E. Hall & Paul R. Milgrom, 2007. "The Limited Influence of Unemployment on the Wage Bargain," Levine's Bibliography 321307000000000135, UCLA Department of Economics.
  12. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-18, April.
  13. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. mismatch of talents: Reconsidering unemployment benefits," Economics Working Papers 211, Department of Economics and Business, Universitat Pompeu Fabra.
  14. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
  15. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  16. Rocheteau, Guillaume, 1999. "Balanced-Budget Rules and Indeterminacy of the Equilibrium Unemployment Rate," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 399-409, July.
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