Whodunnit? Changes in the relative demand for unskilled and skilled labor

The secular shift in labor demand from unskilled to skilled labor is explained within a model that is solved numerically. There are three branches producing a basic good, a differentiated luxury good, and an intermediate service. Production is more skill-intensive in the luxury good and the service branch. Consumption expenditure shifts towards the luxury good with rising income. In this setting, both unskilled-specific and neutral technical change lead to a rise in the relative wage of the skilled. Increasing unemployment results only for a restrictive assumption about labor market rigidities.