This paper aims to examine unemployment persistence in Spain by the soucalled 'ladder' effect. This arises when highly-skilled workers who do not find a job matching their skills accept jobs which previously were occupied by less qualified staff. We develop a dynamic general equilibrium model, in which two types of workers u characterised by their level of formal education u coexist on the labour market. Highly educated workers are then assumed to compete with lowuskilled workers, generating a ladder e?ect. The model is then calibrated on the Spanish economy. Our results replicate the observed decline in the ratio of high to lowuskilled vacancies, and explains how firms substitute high for lowuskilled employment. The results also suggest that the Spanish ladder effect may reflect increases in the training costs as a result of a biased-shock against low-skilled workers.

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July 2002     Paper Number CEPDP0538

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