The adjustment process could continue until the gap in earnings between the two groups is restored to its initial level. Alternatively, the initial gap might not be reached if (1) the demand for skills continues to increase and to outpace supply adjustments or (2) there are barriers or costs that limit the magnitudes of the supply adjustments. The second situation might, for instance, occur if too few students who graduate from high school have academic backgrounds that are strong enough for them to consider enrolling in college. Furthermore, the rising costs of attending college, combined with cuts in financial assistance for lower-
and middle-income families, could limit enrollments of students from such families (Kane, 1995).
Other imperfections in capital and labor markets might tend to reinforce these factors, leading to investments in higher education that are too small to restore earlier differentials between groups.3 In this case the wage and employment effects of mismatch will persist, even in the long run.
Finally, higher unemployment (as opposed to just lower employment) can also result from labor market mismatch.4 This will occur if (1) there are rigidities (such as minimum-wage laws) that keep wages among the less educated from fully adjusting to the lower equilibrium levels shown in Figure 2.1A or (2) the less educated prefer to keep searching for better jobs, rather than accepting jobs with lower wages.5 In both cases, one would expect to find the coexistence of (1) higher job vacancy rates for at least some firms and (2) higher unemployment rates for workers.6
Employer Choices: Hiring, Training, and Other Options
At least in theory, employers' skill needs are not fixed or absolute, and employers have a greater degree of choice over what they need than they might acknowledge. In the long run, employers choose among different levels of capital and technology that imply varying needs for skilled versus unskilled labor. For instance, a decision to replace production workers with some type of capital