Labor Markets and the Choice of Technology in an Open Developing Economy
This paper highlights economic factors determining the choice of technology and openness in an intertemporal context in the presence of Institutional constraints In the labor market. It considers the case in which a more aggressive - development strategy involves an investment in a modern technology. This technology raises the degree to which real wages and productivity depend on external factors while at the same time It also raises the expected value of real income. In the absence of Such investment, production takes place in a traditional sector, using a technology that limits exposure to external shocks. The analysis evaluates the dependence of the choice of technology on the volatility of the shocks affecting the economy, the expected productivity gains, the investment cost associated with the modern technology, and the attitude towards risk. It starts with a benchmark case of a flexible wage/employment economy. The dependence of openness, investment, and real wages on the attltuae towards risk is derived for such an economy. The paper then proceeds to analyze the implications of departures from the benchmark model. Specifically, it evaluates the effects of minimum wage policy on the choice of technology. it is demonstrated that institutional constraints in the labor market tend to discourage adoption of new technologies. The importance of this effect depends on the volatility of the underlying shocks. A rise In the volatility tends to be associated with a drop in the degree to which a given institutional structure constrains the move to the new sector. Thus, turbulent periods provide opportunities for structural shifts in favor of the new sector. The analysis assesses both the positive aspects of policies and the welfare costs associated with departures from fully flexible labor markets. It also discusses the interaction between institutional structure of the labor market and the use of protective measures that attempt to reduce exposure to external shocks.
|Date of creation:||Aug 1986|
|Publication status:||published as The Journal of Development Studies, Vol. 25, No. 2, pp. 210-225, (January 1989).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Charles R. Frank Jr. & Kwang Suk Kim & Larry E. Westphal, 1975. "Foreign Trade Regimes and Economic Development: South Korea," NBER Books, National Bureau of Economic Research, Inc, number fran75-1, June.
- Helpman, Elhanan & Razin, Assaf, 1979.
"A Theory of International Trade Under Uncertainty,"
edition 1, number 9780123396501 edited by Shell, Karl.
- Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
- Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
- Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
- Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
- Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
- Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1998. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.