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 U.S. 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.