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

Chaudhuri, Sarbajit (2010): Economic recession, demand constraint and labour markets in a developing economy.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic recession; skilled labour; unskilled labour; skilled unemployment; informal wage; Sen’s (1974) welfare measure; general equilibrium
• Subjects: F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

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