Differentiation of Skills and Unemployment

Abstract

The purpose of this paper is to study an original relationship between the differentiation of jobs and the characteristics of the labor market. Using an original formalization of horizontal and vertical differentiation of workers, this paper shows that an increase in unemployment leads to creating jobs more suited to skilled workers. Introducing a negative income tax system (NIT), the present model shows that this public policy results in a deterioration of the situation of unskilled workers by encouraging firms to create jobs more suited to skilled.