Allocative Inefficiency and Sectoral Allocation of Labor: Evidence From US Structural Transformation

Talan B. Işcan ()
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Talan B. Işcan: Department of Economics, Dalhousie University

Working Papers from Dalhousie University, Department of Economics

Abstract: Are productivity differences across producers in an industry a good indicator of allocative inefficiency? If so, what are the welfare consequences of reallocating labor from lesser to more productive producers? This paper addresses these questions in the context of factor specificity, which generates endogenous distribution of total factor productivity across producers, and reallocation of labor across sectors, as well as within a sector. The paper builds a multi-sector, multi-region general equilibrium model with land as a region-specific factor, and calibrates it using state-level U.S. data from 1960 to 2004, a period with considerable reallocation of labor out of agriculture. The results show that large and persistent differences in agricultural productivity across U.S. states are consistent with factor specificity due to geoclimatic conditions and do not correspond to economically significant allocative inefficiencies.

Keywords: inefficient allocation of resources; reallocation of labor; agriculture; factor-augmenting technology; United States (search for similar items in EconPapers)
Pages: 41 pages
Date: 2012-03-01
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Published in Economic Modelling, December 2014, pages 305

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