ABSTRACT
This chapter focuses on interactions between unemployment and wage inequality. It describes the empirical evidence on overeducation and a standard model in which biased technical progress is needed in order to generate increases in both the relative wage and the relative employment of high-skill workers. The chapter examines the implications of introducing the asymmetry between the job options of high- and low-skill workers. The asymmetry between the options of high- and low-skill workers can be captured by a reformulation of the standard model. The chapter argues that using plausible parameter values, the broad US pattern may even be consistent with the absence of skill-biases and an unchanged pattern of labor supply. The model leaves out many complicating factors, quite aside from the possible, complementary influences of skill-biases, international trade, and wage-setting institutions. The assumption of only two skill categories clearly involves another drastic simplification as does the assumption of homogeneity of all workers within a skill category.
