Economic recession, demand constraint and labour markets in a developing economy

Sarbajit Chaudhuri

MPRA Paper from University Library of Munich, Germany

Abstract: The paper develops a three-sector, specific factor, general equilibrium model with two high-skill sectors and unemployment of skilled labour. One of the two high-skill sectors produces a non-traded commodity whose aggregate demand consists of both domestic demand and an exogenously given foreign demand. The consequences of a decline in the foreign demand for the non-traded good resulting from worldwide economic recession on the skilled and unskilled labour markets in a developing economy have been examined. The analysis finds that the effects on the labour markets crucially hinge on the relative factor intensities of the two high-skill sectors and that through adoption of appropriate fiscal measures; the country can shield its workforce from the rage of global economic downturn.

Keywords: Economic recession; skilled labour; unskilled labour; skilled unemployment; informal wage; Sen’s (1974) welfare measure; general equilibrium (search for similar items in EconPapers)
JEL-codes: F13 J31 (search for similar items in EconPapers)
Date: 2010-12-12
New Economics Papers: this item is included in nep-lab
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