Skill mismatch and unemployment in OECD countries

This paper uses evidence on employment, labour force, and wage differentials by skills from a number of OECD countries to investigate on the characteristics and the consequences of a skill-biased shift in the structure of labour demand and labour supply. A convex relationship between wages bargained and unemployment is adopted as the non-competitive element that allows such sectoral shocks to have aggregate effects. The model is then calibrated using US and British data. The analysis predicts that nearly half of the increase in unemployment experience in Britain over the past two decades can be attributed to an unbalanced evolution in demand and supply of skills, while in the US the impact of this imbalance was fully offset by counter-acting forces.