Minimum wages, technological progress and loss of skill

This paper considers the effect of a skill biased productivity shock in the case where the unemployed worker risks a loss of skill. This divides the w orkers into short- and long-term unemployed. The short-term unemployed and long-term unemployed search for employment in the most productive sector an d in the antiquated sector, respectively, The implications of a shock with a minimum wage law are compared to the implications when wages are perfectl y flexible, The economic variables considered are short- and long-term unem ployment, wages and wage disparity, and the equilibrium rate of unemploymen t, (C) 2001 Elsevier Science B.V. All rights reserved.