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Labour market skills, endogenous productivity and business cycles

Mirko Abbritti () and Agostino Consolo

No 2651, Working Paper Series from European Central Bank

Abstract: This paper analyses how labour market heterogeneity affects unemployment, productivity and business cycle dynamics that are relevant for monetary policy. The model matches remarkably well the short and long run dynamics of skilled and unskilled workers. Skill mismatch and skill-specific labour market institutions have three main effects on business cycles and growth dynamics. First, as the composition of labour market skills leads to supply segmentation, the relative scarcity of skilled workers increases the natural rate of unemployment and reduces total factor productivity with long-run effects on the growth rate of output. Second, skill heterogeneity in the labour market generates asymmetric outcomes and measures of employment, wages and consumption inequality. Finally, the model provides important insights for the Phillips and Beveridge curves. Skill-specific labour market heterogeneity leads to a flattening of the Phillips curve as wages and unemployment are affected differently across skill types. Also, the model generates sideward shifts of the Beveridge curve following business cycle shocks that are related to the degree of skill heterogeneity. JEL Classification: E24, E3, E5, O41, J64

Keywords: Beveridge curve; consumption inequality; endogenous growth; labour market; monetary policy; Phillips curve; skill heterogeneity; unemployment fluctuations (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-dge, nep-eec, nep-lab and nep-mac
Note: 3572376
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