Wage Divergence and Asymmetries in Unemployment in a Model with Biased Technical Change

In this article we assume two levels of skills and two classes of goods, one produced with a technology requiring high skills, the other produced with a technology that can be operated by both low and high skilled workers. Our model generates two distinct labour market regimes. In one regime we show technical change can be the cause of wage divergence between skilled and unskilled workers. This result is consistent with recent evidence on wage differentials. Adding the Phillips-effect shows this wage divergence can be “traded off” against unemployment of low skilled workers, and hence explains evidence on skill asymmetries in unemployment. Under the alternative regime these effects do not exist but high skilled workers may replace low skilled workers driving them out of their jobs.