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A Two-Sector Growth Model with Labour Supply

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  • Wei-Bin Zhang

    (Ritsumeikan Asia Pacific University)

Abstract

This paper introduces endogenous time distribution between work and leisure into a two-sector growth model. We differ from the traditional growth theory in that we introduce a novel economic mechanism to determine consumers' decision on time distribution, consumption and saving. The utility maximization solves the problem that there is no profound rational decision mechanism for consumers in the Solow growth model and avoids the complication that the Ramsey growth theory brings about. First, we define the two-sector growth model with the alternative approach to consumer behaviour with endogenous labour supply. Then, we examine dynamic properties of the model when the production functions are specified with the Cobb-Douglas forms. We also simulate the model and demonstrate effects of changes in the propensity to save and technology of the capital good sector over time. The appendix examines dynamic properties of the model when the production functions take on general forms.

Suggested Citation

  • Wei-Bin Zhang, 2005. "A Two-Sector Growth Model with Labour Supply," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 8(3), pages 245-260, September.
    • Handle: RePEc:ozl:journl:v:8:y:2005:i:3:p:245-260
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    References listed on IDEAS

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    1. Drugeon, Jean-Pierre & Venditti, Alain, 2001. "Intersectoral external effects, multiplicities & indeterminacies," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 765-787, May.
    2. H. Uzawa, 1971. "On a Two-Sector Model of Economic Growth," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 3, pages 19-26, Palgrave Macmillan.
    3. Zhang, Wei-Bin, 1993. "A woman's labor participation and economic growth : Creativity, knowledge utilization and family preference," Economics Letters, Elsevier, vol. 42(1), pages 105-110.
    4. J. E. Stiglitz, 1967. "A Two-Sector Two Class Model of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(2), pages 227-238.
    5. P. A. Diamond, 1971. "Disembodied Technical Change in a Two-Sector Model," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 7, pages 53-60, Palgrave Macmillan.
    6. Zhang, Wei-Bin, 1997. "A two-region model with endogenous capital and knowledge--locational amenities and preferences," International Review of Economics & Finance, Elsevier, vol. 6(1), pages 1-16.
    7. Mino, Kazuo, 1996. "Analysis of a Two-Sector Model of Endogenous Growth with Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 227-251, February.
    8. Gram, Harvey N, 1976. "Two-Sector Models in the Theory of Capital and Growth," American Economic Review, American Economic Association, vol. 66(5), pages 891-903, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. ZHANG Wei-Bin, 2013. "Time, Income And Wealth Distribution Among Heterogeneous Households In A Two-Sector Model With Sector-Specific Externalities: A Synthesis Of The Arrow-Debreu Equilibrium Theory And Solow-Uzawa Growth ," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 8(3), pages 103-124, Decembre.
    2. Loretti I. Dobrescu & Mihaela Neamtu & Dumitru Opris, 2011. "Stability in a Three-Sector Dynamic Growth Model with Endogenous Labor Supply," Discussion Papers 2012-10, School of Economics, The University of New South Wales.
    3. ZHANG, Wei-Bin, 2013. "Habit Formation And Preference Change In A Twosector Growth Model With Elastic Labor Supply," Academica Science Journal, Economica Series, Dimitrie Cantemir University, Faculty of Economical Science, vol. 1(2), pages 3-20, May.
    4. Wei-Bin Zhang, 2013. "A Synthesis Of The Uzawa-Lucas Model With The Walrasian-General-Equilibrium And Neoclassical-Growth Theories," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 58(199), pages 7-38, October -.
    5. Loretti Dobrescu & Mihaela Neamtu & Dumitru Opris, 2013. "Deterministic and Stochastic Three-Sector Dynamic Growth Model with Endogenous Labour Supply," The Economic Record, The Economic Society of Australia, vol. 89(284), pages 99-111, March.
    6. Wei-Bin Zhang, 2014. "A Study of the Role of Government in Income and Wealth Distribution by Integrating the Walrasian General Equilibrium and Neoclassical Growth Theories," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 12(1), pages 28-45.

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    More about this item

    Keywords

    One; Two and Multisector Growth Models; Time Allocation and Labor Supply (hours of work; part-time employment; temporary workers; work sharing; absenteeism; quits; work-life balance);
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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