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Informationally Imperfect Labour Markets and the 'Dutch Disease' Problem

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  • Haideh Salehi-Esfahani
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    Abstract

    This paper analyzes the "Dutch Disease" as a phenomenon arising from incomplete information in the labor markets of resource-exporting countries. Imperfect observation of labor quality in the manufacturing (traded) sector leads to the pa yment of an efficiency wage in this sector which exceeds the opportun ity cost of low-quality workers. The presence of such an imperfection in a resource-exporting economy is an externality that calls for gov ernment intervention in the form of wage subsidy to the manufacturing sector. It is also shown that in the event of an oil boom, the optim al wage subsidy should be unambiguously increased to prevent perverse effects due to deindustrialization.

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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 21 (1988)
    Issue (Month): 3 (August)
    Pages: 617-24

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    Handle: RePEc:cje:issued:v:21:y:1988:i:3:p:617-24

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    Cited by:
    1. World Bank, 2007. "An Assessment of the Investment Climate in Botswana, Volume 2. Detailed Results and Econometric Analysis," World Bank Other Operational Studies 7747, The World Bank.

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