published in: Economic Journal, 2009, 119 (534), 200-228
This paper considers a matching model with heterogenous jobs (unskilled and skilled) and
workers (low and high-educated) which allows for on-the-job search by mismatched workers.
The latter are high-educated workers who transitorily accept unskilled jobs and continue to
search for skilled jobs. Our findings show that on-the-job search introduces an additional
source of between and within-group wage inequality. Furthermore, the higher quit rate of
mismatched workers exerts a negative externality on unskilled jobs and weakens the labour
market position of low-educated workers. This last feature changes the effects of skill-biased
technological change and it alters the response of the labour market to shifts in the skill
distribution.
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