Capital-Skill Complementarity, Biased Technical Change and (Un)Employment

This Version: 20.03.02 Capital-skill complementarity (CSC) has often been cited as an explanation of rising low skilled unemployment. The CSC hypothesis is usually investigated by the use of the trans-log function. This paper shows that results of previous studies are biased due to methodo-logical inaccuracy. Considering this fact, their results do not support the CSC unambigu-ously. Own translog cost function estimates for West- Germany confirm the supposition that the CSC does not exist if omitted variables and non – neutral technological progress are considered. Rather a skill-biased technical change and low high skilled complementar-ity is found. Finally, the implicit estimated skill specific labour demand is used to explain the high and low skilled unemployment developments. The results show a high explana-tory quality and verify the existence of a growing low skilled gap