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Informationally Imperfect Labour Markets and the 'Dutch Disease' Problem

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  • Haideh Salehi-Esfahani

Abstract

This paper analyzes the "Dutch Disease" as a phenomenon arising from incomplete information in the labor markets of resource-exporting countries. Imperfect observation of labor quality in the manufacturing (traded) sector leads to the pa yment of an efficiency wage in this sector which exceeds the opportun ity cost of low-quality workers. The presence of such an imperfection in a resource-exporting economy is an externality that calls for gov ernment intervention in the form of wage subsidy to the manufacturing sector. It is also shown that in the event of an oil boom, the optim al wage subsidy should be unambiguously increased to prevent perverse effects due to deindustrialization.

Suggested Citation

  • Haideh Salehi-Esfahani, 1988. "Informationally Imperfect Labour Markets and the 'Dutch Disease' Problem," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 617-624, August.
    • Handle: RePEc:cje:issued:v:21:y:1988:i:3:p:617-24
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    Cited by:

    1. David Fielding & Fred Gibson, 2013. "Aid and Dutch Disease in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 22(1), pages 1-21, January.
    2. David Fielding, 2010. "Aid and Dutch Disease in the South Pacific and in Other Small Island States," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 918-940.
    3. World Bank, 2007. "An Assessment of the Investment Climate in Botswana, Volume 2. Detailed Results and Econometric Analysis," World Bank Publications - Reports 7747, The World Bank Group.
    4. David Fielding, 2007. "Aid and Dutch Disease in the South Pacific," Working Papers 0703, University of Otago, Department of Economics, revised Feb 2007.
    5. David Fielding & Fred Gibson, 2013. "Aid and Dutch Disease in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 22(1), pages 1-21, January.

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