Real Wages, Skill Mismatch and Unemployment Persistence
Henri Sneessens () and
No 1994050, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)
We develop a model of equilibrium unemployment with endogenous real wages and productivity. We use a framework with explicit quantity constraints and aggregation over micromarkets to derive a Beveridge curve and discuss the relationship between shifts in the Beveridge curve and equilibrium unemployment. We also distinguish skilled and unskilled labor, so that shifts in the aggregate UV-curve can be the outcome of either frictions on the skilled labor market or skill mismatch. Frictions are assumed to be exogenous and are estimated by a linear trend. Skill mismatch is endogenous and depends, a.o., on the skilled/unskilled relative wage. There is a tight relationship and interaction between skill mismatch and equilibrium unemployment. We estimate the model on French annual data, over the period 1962-89. We exploit these results to propose tentative explanations of observed unemployment rises and Beveridge curve shifts, and to discuss a few economic policy options .
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