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Cumulative effects of labor market distortions in a developing country

  • Norback, Pehr-Johan

This paper considers a small open economy with an input-output industrial structure that creates vertical linkages and multiple equilibria. An imperfect labor market is introduced by assuming unionized labor. It is shown that a deregulation of the labor market may trigger a large discontinuous expansion of industrial output, as reduced wage-costs start a circular, cumulative process in which expansions of the up-and downstream industries promote each other. Centralization of collective bargaining may, however, also be conductive to industrialization.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 65 (2001)
Issue (Month): 1 (June)
Pages: 135-152

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Handle: RePEc:eee:deveco:v:65:y:2001:i:1:p:135-152
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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