Employment Effects of Skill Biased Technological Change When Benefits are Linked to Per-Capita Income
MEA Discussion Paper No. 043-04
25 Pages Posted: 31 Jan 2009 Last revised: 30 Jun 2009
Date Written: January 15, 2004
This paper studies the employment effects of technological change when benefits are endogenous. If the (i) level of welfare aid depends on the general income level in the economy and (ii) wages for unskilled workers cannot fall below the level of welfare aid, there is a link between the wage for unskilled labor and the productivity of skilled labor. An increase in the latter will lead to an increase in average income and hence the level of welfare aid. This in turn leads unions to ask for higher wages for unskilled workers. Technological change is shown to have employment effects (only) if it is skill-biased and if this link exists.
Keywords: Unemployment, Skill-Biased Technical Change, Union Wage Setting
JEL Classification: E24, J31, J50, O30
Suggested Citation: Suggested Citation