Imperfect Mobility of Labor Across Sectors A Reappraisal of the Balassa-Samuelson Effect

Olivier Cardi and Romain Restout ()

Working Papers from HAL

Abstract: This paper investigates the relative price and relative wage effects of a higher productivity in the traded sector compared with the non traded sector in a two-sector open economy model with imperfect substitutability in hours worked across sectors. The Balassa- Samuelson [1964] model predicts that a rise in the sectoral productivity ratio by 1% raises the relative price of non tradables by 1% while leaving the non traded wage-traded wage ratio unchanged. Applying cointegration methods to a panel of fourteen OECD countries over the period 1970-2007, our estimates show that the relative price rises by only 0.78% and the relative wage falls by 0.27%. While our first set of empirical findings cast doubt on the quantitative predictions of the Balassa-Samuelson model, our second set of evidence highlights the role of imperfect labor mobility: the relative price responds more to a productivity differential between tradables and non tradables while the reaction of the relative wage is more muted in countries with higher intersectoral reallocation of labor. We show that the ability of the two-sector model to account for our evidence quantitatively relies upon two ingredients: i) imperfect mobility of labor across sectors, and ii) physical capital accumulation. Finally, our numerical results reveal that the model predicts the relative price response fairly well, and to a lesser extent the relative wage response.

Keywords: Relative price of non tradables; Sectoral wages; Productivity growth; Sec- toral labor reallocation; Investment (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-lma
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01252478v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
https://shs.hal.science/halshs-01252478v1/document (application/pdf)

Related works:
Journal Article: Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect (2015)
Working Paper: Imperfect Mobility of Labor Across Sectors: A réappraisal of the Balassa-Samuelson Effect (2015)
Working Paper: Imperfect mobility of labor across sectors: a reappraisal of the Balassa-Samuelson effect (2014)
Working Paper: Imperfect Mobility of Labor across Sectors: a Reappraisal of the Balassa-Samuelson Effect (2013)
Working Paper: IMPERFECT MOBILITY OF LABOR ACROSS SECTORS: A REAPPRAISAL OF THE BALASSA-SAMUELSON EFFECT (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-01252478

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().