Another reason regards the negative relation between turnover (which is fundamental in our analysis because it is an important component of unemployment incidence) and on-the-job training. In this case, skill specificity is the central concept. Training which enhances skills and productivity in the firm is not fully transferable to other jobs in other firms. As a result, workers who acquire large volumes of training on the job are less likely to move from one firm to another. Likewise, employers are less likely to lay off such workers if they share the costs and returns to training (Ehrenberg & Smith, 2008). We can conclude by stating that, due to the previously examined positive relation education-on the job training, there is a comparable negative correlation between education and turnover.
In addition, Mincer (1991) highlights the influence of education on labour mobility. In his opinion, a possible explanation for this is that firms with high fixed labour costs (i.e. costs of screening, hiring, fringes etc.) will aim to cut these costs by reducing turnover. To achieve this objective, they will select more productive, capable and stable workers. Hence, in substituting quality for quantity of employment, such firms tend to hire a larger proportion of better-educated workers (Mincer, 1991). Yet, another possibility can simply be that more educated individuals are more efficient in job matching. In sum, more educated workers engage in lesser job mobility, especially in local markets. Nevertheless, there is an exception: geographic mobility is greater for better-educated workers.
Now, in order to thoroughly explain the lesser incidence of unemployment of educated workers and the somewhat lesser duration of their unemployment, I will shift the focus on job search behaviour of workers and hiring effort of firms, and I will concentrate more on the situation of job changers.
Firstly, it is necessary to realize that job search of workers takes place both while employed and while unemployed, and that the more educated are more likely to search on the job rather than off the job. The principal reason for this is that, for better-educated workers, the cost of off the job search is relatively higher than that of on the job search (mainly because of larger forgone earnings) (Mincer, 1991). Consequently, this deeper search results in a smaller probability of unemployment.
A further explanation is that better-educated workers are also more efficient in acquiring and processing job search information, particularly if they are more likely to receive advance notices of layoff (Ehrenberg & Smith, 2008).
As far as the firms are concerned, they will search with greater intensity for more educated workers, because the costs of unfilled vacancies for skilled jobs, in term of forgone production, are clearly higher (Mincer, 1991).
All the above-discussed reasons explain the more successful on the job search of the more educated workers. However, efficiency of search is not the only factor affecting duration of search unemployment. Three other factors: opportunity costs, the rate at which the future is discounted, and the expected length of the payoff period, that is the duration of stay on the next job, have conflicting implications for the duration of search (The Handbook of Labour Economics, 1986).
This brief microeconomic analysis of the relation between education and unemployment does not certainly contain every aspect related to it. The problem is that, despite the immense literature available on the wage structure by education, much less research is devoted to mobility and unemployment aspects of education.
Let us now move on to the macroeconomic view of the issue. The deteriorating position of low skilled relative to high skill labour, measured either in terms of a decline in the wages of the least qualified section relative to the most skilled, or in terms of the relative likelihood of their being in work, has recently stimulated a strong interest in globalization and labour markets. The attention has been mainly drawn to the roles of trade, in particular with low-wage economies, as a proxy of globalization, and technology, in particular skill-biased technical change.
An important factor-content analysis, emerging from the labour theorists’ traditional approach, deserves particular attention. A convenient approach, based on a partial equilibrium framework, involves assuming a downward-sloping demand for labour and a vertical supply curve. The labour content of trade can be added to domestic supply, thus shifting the supply curve and permitting identification of the effect of trade on the wage (Greenway and Nelson, 2000). An important proponent of this method is Wood, who published in 1994 the book “North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-driven World”, considered a primary stimulus to research. A further prominent work is the one by Sachs and Shatz (1994), who present one of the most detailed factor-content studies of trade, disaggregating by sector and trading partner. Nevertheless, the initial response by trade economists to this approach was overwhelmingly negative as, in a competitive environment (in primis, the Heckscher-Ohlin-Samuelson type), factor-prices can change only if commodity prices change (Greenway and Nelson, 2000). These studies are directed to the wage skill premium, but they can be similarly referred to the unemployment skill gap.
These findings are certainly significant, but their foundations are too controversial. A better analysis is based on the mandated wage methodology, because of its closer relationship with underlying theory. This approach builds on Jone’s (1971) demonstration that the proportional change in a commodity price will be equal to a weighted average of proportional change in factor prices (Greenway and Nelson, 2000).
In any case, the overall conclusion of the most of the works, with the exception of Wood, is that technological change is a more likely cause of the rising skill gap, both of unemployment and wage, than trade. Still, it must be noted that almost every meaningful work refers to the situation of industrialized countries, whether in relation of trade with each other or with the developing countries.
A more complete understanding of the issue is possible if we take into consideration an interesting complement to the econometric analysis: the computational analysis. One strategy consists of simple computational general equilibrium models to generate “back of the envelope” estimates of relevant magnitudes. A further one comprises large-scale computational general equilibrium models to stimulate the relationship between trade shocks and labour market outcomes. Examples of the former application come from Krugman (1995), and Francois and Nelson (1999). The results are not clear-cut, but they seem to give more weight to the skill-biased technical change as en explanation of the skill gap in the unemployment level. As for the second strategy, an important result is obtained by Tyers and Yang (1998). The authors consider the effects of trade and skill-biased technical change on factor returns, finding, again, that the latter was a predominant cause of the increased skill premium.
Nonetheless, as already mentioned, Wood has slightly discordant and original ideas. He believes, according to most of the studies we have examined, that the rise in the relative demand for skilled labour during the past two decades was caused by the skill-biased technical change, that is the same force that had propelled it upward over the previous century. However, at the same time, he believes that most of the acceleration in the growth rate of the relative demand for skilled workers in the past two decades above its trend of the previous few decades, and hence the rise in labour market inequalities, was caused by globalization.
In practice, he thinks that the scope for conflict between trade and technology views is much narrower than is usually supposed, being confined to the causes of the acceleration of the rate of growth of the relative demand for skilled labour (Wood, 1998).
Wood largely bases his analysis on the Heckscher-Ohlin model with skilled and unskilled labour as the two factors and North (developed) and South (developing) as the two countries. Trade with the South causes the North to specialize in the production of skill-intensive manufactures, in which it has a comparative advantage because of its relatively large supply of skilled labour, and to reduce production of labour-intensive manufactures. In the North, there is a rise in the relative price of skill-intensive goods and the relative demand for skilled labour, and a widening of the wage gap between skilled and unskilled workers, and vice versa in the South (Wood, 1998).
Then, he critically reviews the empirical research on the field, concentrating on: country-level panel data studies, factor content calculations, changes in relative prices, and changes in sectoral skill intensity, productivity and employment. In this way he shows that all the results are not incompatible with the globalization supposition.
Finally, he concludes his analysis by answering the following, well known and debated question. “Was the recent acceleration of the long-term trend rise in the relative demand for skilled labour caused mainly by falling barriers to international transactions or mainly by unrelated changes in technology?” In his opinion, the empirical evidence does not rule out either of these explanations, but on balance seems to give more support to the globalisation hypothesis. He continues, “the country-level panel data studies and factor content calculations suggest that the impact of more trade with the South was big enough to explain the acceleration of demand growth; and the price studies and cross-sectoral studies of skill intensity, productivity and employment, though they do not actively support the globalisation hypothesis, are not inconsistent with it, either. There is plenty of evidence that skill-biased technical change has raised the relative demand for skilled workers, but much less evidence of an autonomous acceleration in its pace over the past two decades.”
In my personal opinion, all the aforementioned studies present valid and logical explanations to the evidence that in almost all developed countries, since about 1980, the gaps between skilled and unskilled workers in wages and/or unemployment rates have widened. Moreover, there is also a moderate consensus on the main general reasons for that. As far as the debate globalization – skill-biased technical change is concerned, I believe that further research is fundamental to shed light on it. The first obstacle to draw a definite conclusion is that the evidence available so far is almost exclusively for the USA and the other developed countries (Greenway and Nelson, 2000). Secondly, as indirectly noticed by Wood (1998), it must be considered that trade and technology interact; more research based on this assumption is required. Finally, and I believe most importantly, trade is just one dimension of globalization, and the impact of factor movements on labour market outcomes is not yet well understood.
REFERENCES
E&S, Chapter 14; C & Z, Chapters 3, 8 and 9; ALC, Chapters 16 and 17; RB, Chapters 1, 7 & 8; GW, Chapters 1, 2 and 5; DWG, Chapters 5, 6 and 8
Greenaway, D. & Nelson, D. "Globalization and Labour Market Adjustment", OXREP, 16(3), Autumn 2000
Mincer, J. “Edication and Unemployment”, NBER Working Paper No. 3838, September 1991
Mortensen, D. & Pissarides, C. "Unemployment Responses to Skill-biased Technology Shocks", EJ, 109(455) April 1999
Nickell, S., Nunziata, L. & Ochel, W. "Unemployment in the OECD since the 1960s", EJ, January 2005
Wood, A. "Globalisation and the Rise in Labour Market Inequalities", EJ, 108(450), 1998
