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Federal Reserve Bank of Chicago
Working Paper Series
Unskilled workers in an economy with skill-biased technology
Shouyong Shi

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.

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Shouyong Shi, Unskilled workers in an economy with skill-biased technology, Federal Reserve Bank of Chicago, Working Paper Series WP-99-5, 1999.
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Keywords: Unemployment ; Wages ; Technology
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