This paper analyzes Danish firms' demand for skilled and unskilled labor. The main focus is on the degree of long-run substitutability and the paper, therefore, applies the cointegration method. The paper finds that there is a high degree of substitutability between the two types of labor. Moreover, price increases on imported raw materials lead to a fall in the demand for unskilled labor relative to the demand for skilled labor. The decline in wage differentials and the adverse OPEC shocks in the 1970s, therefore, explain why unskilled workers have had a more unfavorable employment performance than skilled workers. Copyright 1993 by Blackwell Publishing Ltd
