Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers

This paper presents a matching model with low– and high–skilled workers and simple and complex jobs. I show that the degree to which low–skilled workers are harmed by high–skilled workers who are willing to temporarily accept simple jobs depends on the relative productivity of high– and low–skilled workers on simple jobs and on the quit rate of high–skilled workers. Under certain conditions, low–skilled workers can benefit from job competition with high–skilled workers. Within this framework, some explanations for the high and persistent unemployment rates of lower educated workers in the 1990s are evaluated.