On development paths minimizing the aggregate labor-reallocation costs in the three-sector framework and an application to structural policy

Denis Stijepic

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: Cross-sector labor reallocation is associated with costs at the micro level ranging from the costs of geographical relocation and skill change/adaptation to unemployment. We show that monotonous reallocation paths minimize the aggregate reallocation costs in the three-sector framework (relating to agriculture, manufacturing, and services), where we assume that the aggregate reallocation costs are indicated by the strength of cross-sector labor reallocation. By using this result and the (qualitative) labor-reallocation "laws" based on the theoretical/empirical literature consensus, we derive the cost-minimizing development strategy for a developing country. We use these results to discuss some well-known structural/trade strategies and compare the historical reallocation costs across countries.

Keywords: employment structure; long-run dynamics; costs; industrial/structural policy; uncertainty; dynamic optimization; calculus of variations; geometry; vector; simplex (search for similar items in EconPapers)
JEL-codes: C61 O14 O21 O24 O41 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203519

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