Events at CERGE-EI

Dr. Yanos Zylberberg

CREI, Universitat Pompeu Fabra, Barcelona, Spain

Authors: Regis Barnichon and Yanos Zylberberg

Abstract: A substantial fraction of job holders are under-employed, i.e., in jobs for which they are over-qualified. This paper proposes a model to analyze the mechanisms behind under-employment and its consequences for the functioning of the labor market. We show that under-employment is generally inefficient: in a competitive market, there are too many high-skill workers employed in low-productivity firms, and there are not enough high productivity firms. Under-employment generates a trickle-down phenomenon, in which unemployment trickles down from the high-skill groups to the low-skill groups. The trickle-down of unemployment exacerbates inequality across worker-skill groups by redistributing shocks from the high-skill groups to the low skill groups. As a result, high-skill workers enjoy not only higher expected income but also lower income volatility.

JEL: E24, J22, J64.

Keywords: unemployment, directed search, misallocation.

Full Text:  “The Inefficient Trickle-Down of Unemployment”