Both Sides of the Story: Skill-biased Technological Change, Labour Market Frictions, and Endogenous Two-Sided Heterogeneity
This paper presents a stylised framework to examine how skill-biased techÂ¬nological change and labour market frictions affect the relationship between economic expansion and unskilled unemployment. The first part of the analysis focuses on the investment decisions in skill-acquisition and technology adoption activities faced by workers and firms in response to the introduction of an innoÂ¬vative technology. The second part examines how endogenous two-sided heteroÂ¬geneity in the labour market affects the macroeconomic outcomes in terms of unemployment, technological diffusion, and economic expansion. To conclude, the framework is used to discuss the effects of alternative forms of policy interÂ¬vention on agents' investment decisions and on the macroeconomic outcomes.
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