Technological progress in western economies has contributed to an immense rise in productivity, incomes and goods available over the last hundred years. Though not to the same extent as productivity and wages, population and employment have risen as well. Nevertheless, innovations are often blamed for job destruction and unemployment, with workers historically fighting against technological progress. Since the short and long term impacts of innovation can be different, this does not necessarily imply a contradiction. Negative and positive employment effects occur in various industries at various levels of skill. The aim of this project, which has been promoted by DFG, Deutsche Forschungsgemeinschaft since 1996, is to improve the theoretical and empirical knowledge of the relationship between innovation, skills and labour demand. To achieve this aim microeconomic and microeconometric models from labour market and industrial economics are employed taking into account institutions and market imperfections. The employment consequences of technological progress will depend on the structure of goods and labour as well as other factor markets, on national labour market institutions which determine wages, and on educational policies. The empirical analysis is based on aggregate sector data and on individual and firm data. In the last decades Germany experienced a massive upskilling of the labour force. The share of the highly skilled has doubled in around twenty years, which is a consequence of the educational revolution starting in the early seventies. At the same time the number of unemployed persons rose to 4 millions and unemployment rates are lowest among the highly skilled despite the massive rise in the supply of the highly skilled. The analysis so far shows differential impacts of new technologies on labour demand for different skill groups. While innovations raise the employment prospects of the highly skilled it decreases those of the low-skilled. Overall the employment impacts of innovations have been negative in the early nineties. Despite its good reputation, there is also evidence that the efficiency of the German dual apprenticeship system is deteriorating in the course of technical progress. The system can be criticised for training young people in skills which afterwards are not needed. As a consequence, skilled workers find themselves unemployed or are forced to change occupations. Another critique is that the contents of apprenticeship training quickly become obsolete due to technological change. The employment impact of innovations are reinforced through imperfections in the labour market which lead to rigid wages. In the case of rigid wage structures the negative employment impacts of technological shocks for the unskilled are higher compared to more flexible wages. The origin of rigid wage structures can lay in imperfect output markets and/or in institutional and economic factors influencing the functioning of labour markets. In that sense wage determination processes and educational policies influence the path of innovations and technical progress and its impact on labour demand.