Unemployment and endogenous growth with new technologies-skill complementarity

Models developed by recent economic literature do not manage to account simultaneously for the three main stylized facts observed in many EU countries since the mid-seventies: (i) the increase in the overall unemployment rates, particularly in that of low-skilled workers; (ii) the stability of relative wages; (iii) the deceleration in per capita output growth rates. This paper focuses on these issues. We construct an endogenous growth intertemporal general equilibrium model with two types of jobs and two types of workers. We allow for job competition between high- and low-skilled workers on the low-skilled segment of the labor market and for on-the-job search for high-skilled workers. Matching processes are represented by matching functions à la Pissarides. Workers search intensities are endogenous. We distinguish between embodied and disembodied technological progress and endogenize them through a learning-by-doing process based on capital accumulation. Biased technological change is introduced via embodied technical progress and new technologies-skill complementarity relationship. When simulated the model provides satisfactory results in reproducing the observed stylized facts.