This paper analyses how labour market heterogeneity affects unemployment, productivity and business cycle dynamics that … unskilled workers. Skill mismatch and skill-specific labour market institutions have three main effects on business cycles and … skilled workers increases the natural rate of unemployment and reduces total factor productivity with long-run effects on the …

-run Phillips curve between inflation and unemployment and a trade-off between price distortions and output hysteresis that change … hysteresis effects on unemployment and output. Price level targeting or a Taylor-rule responding to the unemployment rate can …