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Cumulative Effects of Labor Market Distortions in a Developing Country

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Abstract

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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  • Norbäck, Pehr-Johan, 1999. "Cumulative Effects of Labor Market Distortions in a Developing Country," Working Paper Series 520, Research Institute of Industrial Economics, revised 10 Jan 2001.
    • Handle: RePEc:hhs:iuiwop:0520
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    References listed on IDEAS

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    1. Agenor, Pierre-Richard & Nabli, Mustapha K. & Yousef, Tarik & Jensen, Henning Tarp, 2007. "Labor market reforms, growth, and unemployment in labor-exporting countries in the Middle East and North Africa," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 277-309.
    2. Marjit, Sugata & Kar, Saibal & Acharyya, Rajat, 2007. "Agricultural prospects and informal wage in general equilibrium," Economic Modelling, Elsevier, vol. 24(3), pages 380-385, May.

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    More about this item

    Keywords

    Vertical linkages; Multiple equilibria; Labor unions;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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