Factor Market Dualism, Small Scale Industry and Labor Absorption

Jaleel Ahmad
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Jaleel Ahmad: Concordia University

Journal of Economic Development, 2000, vol. 25, issue 1, 111-126

Abstract: This paper takes a closer look at the dualistic nature of labor and credit markets in developing countries in so far as their functioning is relevant for labor absorption in small scale industry. The potential for absorption of excess labor from the ¡°informal¡± urban market in the small scale industry is assessed within the framework of a modified ¡°specific factors¡± model. The paper concludes that segmentation in labor and credit markets in developing countries is asymmetric in its implications for labor absorption in small scale industry. While the high cost of capital and its unavailability to small scale industry is a serious constraint, the availability of a pool of unemployed labor in the urban informal labor market, and at a significantly lower wage, offers an unexploited opportunity. However, this is conditional on a policy regime that shifts domestic demand towards the output of small scale industry.

Date: 2000
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