Skill supply, supervision requirements and unemployment of low-skilled labor

This paper presents a model with flexible wages in which unemployment of lo w-skilled labor is possible in equilibrium, whereas high-skilled workers ar e fully employed. Thus, the model can explain why even in countries with fl exible labor markets and full employment of skilled labor an employment pro blem exists at the bottom of the skill spectrum. The model is used to evalu ate the impact of technological change and increased skill supply on the em ployment of low-skilled workers. It is shown that a switch to technologies with higher skill requirements unambiguously leads to a rise in unemploymen t of low-skilled workers. An increase in the supply of high-skilled labor h as a positive effect on the employment level of low-skilled labor.