Capital-Skill Complementarity, Embodied Technological Progress and Unemployment Inequality

We build an intertemporal general equilibrium framework with a double heterogeneity: simple vs. complex jobs and low vs. high skilled workers. The key feature of our model is Capital-Skill Complementarity in the final sector aggregate production function. A four-factor production function with different substitution elasticities between the two types of capital and the two types of labour is employed. In such a way, biased technological change is introduced via CSC and embodied technical progress. We quantitatively assess the contributions of different explanations to the Belgian labour market dynamics over the period 1976 − 1996 decomposing relative labour demand shifts into a skill-biased effect and a capital-skill complementarity effect. We conclude that the former turns out to be the main force driving the rise in the relative demand for skills, whereas CSC through the growth in the equipment stock accounts for a smaller part of that