ket depending on the dominance of one of these effects and, therefore, steady-state
duration as well as steady-state long-term unemployment can shrink or rise.

6 Conclusion

The starting point of this analysis is the stylized fact that in industrialized countries
characterized by high levels of capital intensities and rapidly introducing technical
progress long-term unemployment increases and simultaneously the countries display
positive GNP per capita growth rates.

For explaining this stylized fact, the relationship between long-term unemploy-
ment and the rate of technical progress is analyzed in a growth-matching-model that
describes labor market frictions and the capital accumulation process of an econ-
omy. The unemployment pool consists of heterogeneous unemployed workers and
the fraction of long-term unemployment is endogenously determined by the duration
of unemployment itself and by the rate of technical progress.

Since industrialized countries are economies with high levels of capital intensities,
they are innovation rather than imitation economies and, due to inventing rapidly
new production methods, they offer vacancies endowed with the latest technology.
Therefore, firms require workers with human capital able to handle the most recent
technologies. Assuming a constant labor force and a heterogeneous unemployment
pool that consists of short-term and long-term unemployed, only jobless workers
can fill new vacancies. Furthermore, since the qualification level of the unemployed
does not grow with the same rate as technical progress, the human capital of the
unemployed depreciates as technical progress increases and it depreciates the faster,
the longer the unemployment duration takes. Firms are not willing to hire long-term
unemployed implying that only short-term unemployed are matched with new va-
cancies. Thus, the model shows that in innovation economies with high steady-state
capital intensities qualification-mismatch increases by accelerating technical progress
and, due to the dominance of the creative destruction effect and the qualification-
mismatch effect over the capitalization effect, long-term unemployment rises as well.

For imitation economies with low steady-state capital intensities, increasing tech-
nological progress can be favorable or less favorable for long-term unemployment
depending on whether the creative destruction effect or the capitalization effect
dominates.

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