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Labor Surplus Revisited

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  • Ranis, Gustav

Abstract

Unskilled labor is the abundant resource in many developing countries, especially at an early stage of their development. Yet, even as at given technologies labor markets have not cleared, neo-classical economists have rejected the notion of an institutional or bargaining wage not based on competitive full employment marginal productivity fundamentals. This paper puts to rest some objections to labor surplus theory based on “red herrings” and then addresses the substantive challenges from the micro-econometric branch of neo-classical economics. We contend that the finding of inelastic supply curves of labor is based on a cross-section static analysis of labor supply within agriculture while the labor surplus model deals with tracing the dynamic reallocation of labor from a traditional to a neo-classical organized sector in a dualistic economy. We present data for a number of labor surplus developing countries showing that institutional wages lag behind agricultural productivity increases as countries move towards a “turning point” when inter-sectoral balanced growth has eliminated unskilled labor and the economy has lost its dual characteristic.

Suggested Citation

  • Ranis, Gustav, 2012. "Labor Surplus Revisited," Center Discussion Papers 133411, Yale University, Economic Growth Center.
    • Handle: RePEc:ags:yaleeg:133411
    DOI: 10.22004/ag.econ.133411
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    Cited by:

    1. Lavopa, A., 2014. "Catching up and lagging behind in a balance-of-payments-constrained dual economy," MERIT Working Papers 2014-042, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Subir Bairagi & Muntaseer Kamal, 2019. "Is Bangladesh’s Economy Approaching the Lewis Turning Point?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 20(1), pages 19-45, March.
    3. Briones, Roehlano & Felipe, Jesus, 2013. "Agriculture and Structural Transformation in Developing Asia: Review and Outlook," ADB Economics Working Paper Series 363, Asian Development Bank.
    4. Zhang, Xiaobo & Rashid, Shahidur & Kaikaus, Ahmad & Ahmed, Akhter, 2021. "Escalation of real wages in Bangladesh: Is it the beginning of structural transformation?," IFPRI book chapters, in: Securing food for all in Bangladesh, chapter 10, pages 343-374, International Food Policy Research Institute (IFPRI).
    5. Ishwor Adhikari, 2022. "The conundrum of labour shortage in a labour surplus economy: an investigation of Nepal," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 24(2), pages 404-435, December.

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