In this article, we study the effect of skill-biased technological change on
unemployment and wage inequality in the presence of a link between social
benefits and average income. In this case, an increase in the productivity of
skilled workers, and hence their wage, leads to an increase in average
income and hence in benefits. The increased fallback income, in turn,
makes unskilled workers ask for higher wages. As higher wages are not
justified by corresponding productivity increases,...
Authors: Matthias Weiss, Alfred Garlof