MERIT Research Memorandum RM 2/98-016 Sweeping the Chimney before Kindling the Fire as a Workable Option for Employment Policy by

1) This argument is used by Kettunen (1994) is his job competition model. 2) This is corroborated by the fact that particularly in the lower segment of the labour market over-schooling occurs to a large extent. For the Netherlands this is documented in Goort and Maasen-Van den Brink (1996) and Oosterbeek and Webbink (1996). 3) The implied crowding out effect — or as Dreze and Malinvaud (1993) put it 'trickling down effect' — is not found for the Netherlands by Van Ours and Ridder (1995). However, their results are criticised by both Van der Laan (1996) and De Beer (1996), who do find crowding out effects.1 Introduction One of the most pressing problems of today is the uneven distribution of the burden of unemployment across different skill groups. Especially low-skilled workers are more often unemployed than other skills (OECD, 1994). They are also unemployed for longer periods of time (Muysken and Ter Weel, 1997). The unevenness of this distribution seems to indicate that having different skills determines to some extent one's employment/unemployment opportunities. However, policy prescriptions meant to alleviate the problems associated with the uneven distribution of unemployment are primarily based on (conceptual) models which effectively ignore skill-differences between workers. Policy recommendations involving wage-flexibility or reductions in costs of hiring and firing, for example, seem to be based on the notion that essentially skills are not the distinctive elements in defining the employment opportunities of an individual. Instead, individual skill-services being over-priced or being too costly to hire and/or fire, are often regarded to be the real cause of disparities in unemployment rates by skill. In this paper we will argue that this neglects the fact that people with high-level skills have intrinsically more employment opportunities than people with low-level skills. This is because low-skilled people may find it (too) hard to fill high-level jobs. High-skilled people on the other hand may 1 be expected to be able to perform, in principle at least, in both low-level jobs and high-level jobs. In addition, it may well be possible that high-skilled workers are more efficient than low-skilled workers on low-level jobs. Given these asymmetries between low-skilled and high-skilled workers' employment opportunities, it follows directly that the number of low-level jobs is an upper limit to low-skilled employment, while the number of high-skilled jobs is a lower limit to high-skilled employment. Hence, in the absence of supply bottlenecks , high-skilled employment 2 …