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This article aims to understand how public policies affect the behavior of agents in terms of selectivity. In other words, we explain how the state of the labour market and, in particular the qualification level of workers, affects the technological choices of firms. Using a matching model in which workers are vertically differentiated and where the nature of jobs is endogenous, we show that an increase in unemployment benefits or in minimum wage can enhance the recruiting of skilled workers by making firms more selective and jobs more complex.

The deteriorating labour market situation of the less qualified over the past twenty years has characterized most developed countries. This has led many experts and international organizations, including the OECD, to focus on the lack of the labour market’s flexibility in European countries (Krugman, 1993 and Manacorda and Petrongolo, 1999) and to recommend that these countries should soften their legislation. Labour market legislation which varies from one country to another would, according to the OECD, be an important explanation for the observed differences between European and American unemployment and wages inequalities. In particular, the OECD emphasizes the relatively high costs of layoffs, minimum wage and the role of trade unions.

This paper aims at understanding interactions between labour market performance and public policies used to reduce inequalities. Within an economy in which the nature of jobs is endogenous, we analyze the consequences of adopting and increasing the minimum wage and unemployment benefits. These instruments are generally considered as the source of labour market inflexibility. Considering that job complexity results from the firm’s choice, we have obtained two main results. The first one is related to minimum wage impact on job quality and labour market participation. We have shown, in the second result, that unemployment benefits lead to a fall in job creation and to productivity improvement.