unemployed more reluctant to take up poorly paid jobs in start-up industries. Thus,
an increase in long-term unemployment is implied, and increasing structural change,
interpreted as the rate of skill decay, will always raise unemployment. This point
of view is confirmed by Marimon, Zilibotti (1999). They show in a search-
matching model with heterogeneity in productivities that differences in unemploy-
ment insurance result in differences in unemployment and productivity growth, when
countries experience a skill-biased technological shock. Due to the complementarity
between capital and capital-specific-skills, the mismatch in the economy is enlarged.
Mortensen, Pissarides (1999) also examine the effects of skill-biased shocks that
increase the spread of productivities across different skills. These skill-biased shocks
are modelled as changes in the complementarity between new capital and labor,
favoring the more skilled and eroding the productivity of the less skilled. Therefore,
pure skill-biased shocks lead to higher mean unemployment and to longer unem-
ployment durations.
3 The Economy
As this discussion shows, in growing economies the skill-biased mismatch respec-
tively qualification-mismatch is a crucial determinant for the existence and the in-
crease of long-term unemployment. In our approach, it is defined as the mismatch
between the human capital of unemployed and the job-specifications demanded by
firms, and finds its expression especially with increasing technological progress. The
higher the growth rate of technological progress, i.e. the faster new production
technologies are introduced, the more qualification-intensive and specific the job-
requirements are that arise from the creation of new jobs. Therefore, new technolo-
gies need specific human capital being capable of using new machines, computers etc.
Economies with high steady-state capital intensities are characterized by rapid in-
novation development and rapid introduction of new technologies. Therefore, these
countries are innovation rather than imitation economies. If a constant labor force
and a heterogeneous unemployment pool, consisting of short-term and long-term
unemployed, is regarded and if on-the-job-search is omitted, only jobless workers
can fill new vacancies resulting from the innovation of new technologies. Further-
more, if the qualification level of the unemployed does not grow with the same rate
as technical progress, i.e. the rate of technological progress is strictly positive and
the accumulation rate of human capital is zero, human capital of the unemployed
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