Relative unemployment rates and skill-biased technological change

A popular explanation for the European unemployment problem is that relative wages have failed to adjust to changes in relative productivities. Many economists reject this hypothesis on the ground that the ratios of low- to high-skill unemployment have not increased. Building on a search model, I show that relative unemployment rates are affected by skill-neutral, as well as skill-biased shocks; hence stable ratios are, at least theoretically, consistent with a mix of skill-biased and skill-neutral shocks. However, I question the extent to which the relevant skills are observable. Micro evidence from Norway indicates that rising inequality in the unemployment distribution has little to do with educational attainment. – Unemployment ; Job search ; Wage compression ; Skill-bias