with Xavier Cuadras-Morato

Abstract: This paper studies simultaneous changes in four labor market variables: the unemployment rates for college and high-school graduates, the education wage premium, and the level of college participation. It develops an equilibrium search and matching model of the labor market where education is endogenously determined. Then the model is used to investigate quantitatively whether the change in the above labor market variables from 1970 to 1990 in the U.S. can be traced to some changes in the environment. A skill-biased change in technology together with an increase in employment frictions can explain much of the observed variation in these variables. These findings rest critically on the joint determination of education decisions, wages, and unemployment.

International Economic Review, 47, 129-160, 2006 download