Skills, Search and the Persistence of High Unemployment
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0304-3932
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Journal of Monetary Economics, 2006, 53, 8, 1895-1908
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ORTIGUEIRA, Salvador, Skills, Search and the Persistence of High Unemployment, Journal of Monetary Economics, 2006, 53, 8, 1895-1908 - https://hdl.handle.net/1814/16583
Abstract
The persistence of high-unemployment rates in Europe has fueled theories advocating the existence of multiple natural rates of unemployment. Labor-market institutions and increasing returns to scale have been singled out as the main causes of multiplicity and, therefore, of high-unemployment traps. The contribution of this paper is both to expand the set of mechanisms leading to multiple natural rates of unemployment and to establish a minimum set of assumptions under which such multiplicity may arise. To this aim, a search-matching model is presented where households allocate time to market and non-market activities, and invest both in physical and human capital. It is shown that under the standard assumption of concavity in production and matching such a model yields multiple long-run equilibria with different rates of unemployment. This result does not rely on labor-market institutions or increasing returns to scale. Multiplicity in our model arises from differences in the intensity of use of human capital across time-consuming activities. (c) 2006 Elsevier B.V. All rights reserved.