Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2000:9: Unemployment in Europe: Swimming against the Tide of Skill-Biased Technical Progress without Relative Wage Adjustment

Werner Roeger and Hans Wijkander ()
Additional contact information
Werner Roeger: European Commission, Postal: European Commission, DGII, Rue de la Roi 200, B-1049, Bruxelles Belgium
Hans Wijkander: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: The hypothesis that European unemployment is the rigid relative wage mirror-image of increased wage dispersion in the US is explored. The framework is a two sector –manufacturing and services- model with skilled and unskilled labor. A proxy for skill-biased technical progress (SBTP) is constructed from data on total factor productivity (TFP). Econometric analysis of the relationship between SBTP and aggregate unemployment shows that SBTP explains some 50% of the unemployment increase in major European countries since the early 1970s, but it does not explain US unemployment. The hypothesis is robust in that it is not rendered void by inclusion of alternative, mostly macroeconomic, explanatory variables.

Keywords: TBA

JEL-codes: Q28

40 pages, April 11, 2000

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