Spanish Unemployment Persistence and the Ladder E¤ect¤

This paper aims at explaining unemployment persistence in Spain by the so–called “ladder” e¤ect. This arises when high-skilled workers who do not ...nd a job corresponding to their skill accept jobs which previously were occupied by less quali...ed sta¤. We develop a dynamic general equilibrium model, in which two types of workers — characterized by their level of formal education — coexist on the labor market. Highly educated workers are then assumed to compete with low–skilled workers, generating a ladder e¤ect. The model is then calibrated on the Spanish economy. Our results replicate the observed decline in the ratio of high to low– skilled vacancies, and explains how ...rms substitute high for low–skilled employment. The results also suggest that the Spanish ladder e¤ect may essentially re‡ect increases in the training costs as a result of a biasedshock against low-skilled workers. JEL classi...cation: E24, J64