Biased Technological Shocks, Wage Rigidities and Low-Skilled Unemployment

The contrast between the evolution over the last decades of the EU and the US unemployment rates, especially for the low-skilled, is well known. A consensus view is that these different outcomes can be explained by the interactions between common shocks and specific institutional setups. In this paper, we emphasise the interactions between technological changes and wages ridigities. We construct a fully calibrated general equilibrium model with two types of jobs and two types of workers, and with search unemployment. Our simulations show that with wages rigidities, technological changes suffice to generate a continuous rise in the low-skilled unemployment rate and an almost unchanged high-skilled unemployment rate. Without wage rigidities, the unemployment rates remain unchanged but the wage dispersion widens.