Working Paper

Unskilled workers in an economy with skill-biased technology

Abstract: This paper contributes to the search theory of unemployment by endogenously generating matching functions for skilled and unskilled workers from a wage-posting game. The model is capable of producing a positive skill premium and a positive wage differential among homogenous unskilled workers. The skill premium arises from a skill-biased technology; the wage differential among unskilled workers sustains because a lower wage is compensated by a higher change of getting the job. The model provides useful explanations for the observed dynamics patterns of within-skill and between-skill wage differentials in the 1970s and 1980s and for the relative cyclical volatility of hours of worker by different skill groups of workers.

Keywords: Unemployment; Wages; Technology;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 1999

Number: WP-99-5