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Explaining high unemployment among low-skilled workers: Evidence from 21 European and Anglo-Saxon countries, 1991-2006

Daniel Oesch ()

MPRA Paper from University Library of Munich, Germany

Abstract: The OECD’s unemployment problem is largely concentrated among low-skilled workers. In this paper, four explanations of low-skilled workers’ unemployment are examined: wage-setting institutions, employment regulation, globalization, and monetary policy. The analysis is based on pooled regressions for 21 affluent countries over the period 1991-2006. Our findings provide no support for the hypothesis that low-skilled workers’ employment prospects are hindered by legal minimum wages or strict employment protection. Likewise, large wage inequality does not seem to be a necessary condition for countries to achieve low rates of low-skilled unemployment. In contrast, investment in active labour market policies pays off in form of less low-skilled unemployment. Additionally, low real interest rates are associated with significantly less low-skilled unemployment. Hence, low-skilled workers’ job prospects seem enhanced by a combination of active labour market policies with a monetary policy that allows the economy to fully exploit its growth potential.

Keywords: unemployment; low-skilled workers; wage inequality; monetary policy (search for similar items in EconPapers)
JEL-codes: J60 E24 (search for similar items in EconPapers)
Date: 2009-02-18
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