Abstract
A simultaneous model of demand for labour and capital is estimated, based on a production function with four inputs. These inputs consist of three labour categories, distinguished by age, and physical capital. Factor substitutability appears to be elastic, except for substitution between the youngest and oldest group of workers. The own wage elasticity of demand for middle-aged workers is comparatively high. These findings indicate that high unemployment categories of labour, like youths and older workers, benefit less from wage cost reducing policy measures than the middle-aged group.
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