Skill Biased Technological Change and Endogenous Benefits: The Dynamics of Unemployment and Wage Inequality

Matthias Weiss and Alfred Garloff

No 05-79, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: In this paper, we study the effect of skill-biased technological change on unemployment when benefits are linked to the evolution of average income and when this is not the case. In the former case, an increase in the productivity of skilled workers and hence their wage leads to an increase in average income and hence in benefits. The increased fallback income, in turn, makes unskilled workers ask for higher wages. As higher wages are not justified by respective productivity increases, unemployment rises. More generally, we show that skill-biased technological change leads to increasing unemployment of the unskilled when benefits are endogenous. The model provides a theoretical explanation for diverging developments in wage inequality and unemployment under different social benefits regimes: Analyzing the social legislation in 14 countries, we find that benefits are linked to the evolution of average income in Continental Europe but not in the U.S. and the UK. Given this institutional difference, our model predicts that skill-biased technological change leads to rising unemployment in Continental Europe and rising wage inequality in the U.S. and the UK.

Keywords: Unemployment; Skill-Biased Technological Change; Benefits (search for similar items in EconPapers)
JEL-codes: E24 J31 J50 O30 (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/24175/1/dp0579.pdf (application/pdf)

Related works:
Journal Article: Skill-biased technological change and endogenous benefits: the dynamics of unemployment and wage inequality (2009)
Working Paper: Skill Biased Technological Change and Endogenous Benefits: The Dynamics of Unemployment and Wage Inequality (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:4562

Access Statistics for this paper

More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().