Education and the natural rate of unemployment

We show how changes in the educational composition of the labour force affect both the level and the behaviour over time of aggregate unemployment series. We also demonstrate that if it had not been for such changes, the US unemployment series would look 'European' since the within-group unemployment series all have that same appearance. We derive a natural-rate model of unemployment for two education groups, providing microfoundations for inter-group differences in wages and unemployment, and evaluate its plausibility in light of microeconomic evidence.