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

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  • Stijepic, Denis

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.

Suggested Citation

  • Stijepic, Denis, 2019. "On development paths minimizing the aggregate labor-reallocation costs in the three-sector framework and an application to structural policy," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203519, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203519
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    More about this item

    Keywords

    employment structure; long-run dynamics; costs; industrial/structural policy; uncertainty; dynamic optimization; calculus of variations; geometry; vector; simplex;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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