Job-search and FDI in a two-sector general equilibrium model

Bandopadhyay, Titas Kumar and Chaudhuri, Sarbajit (2011): Job-search and FDI in a two-sector general equilibrium model.

Abstract

The purpose of this paper is to extend the Fields’ (1989) multi sector job-search model by introducing international trade and capital. Two types of capital are considered: fixed capital and mobile capital. The effects of search intensity and the inflow of foreign capital on the volume and the rate of urban unemployment and on the social welfare are also examined in both of the two cases. The main finding is: more efficient on-the-job search from the rural sector raises unemployment rate when capital is mobile between the two sectors. This is counterproductive to the standard result.

• Item Type: MPRA Paper
• Language: English
• Keywords: Job search, foreign capital, unemployment rate, ex-post labour, ex-ante labour, general equilibrium
• Subjects: F - International Economics > F1 - Trade > F10 - General; J - Labor and Demographic Economics > J1 - Demographic Economics > J10 - General; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I28 - Government Policy

References

Adam, M.Z. and Cletus, C. C. (1995): ‘An introduction to the theory and estimation of a job-search model’, Review, January/February, 53- 65.

Arseneau, D. M. and Chugh, S. K. (2009): ‘Labor force participation and general equilibrium efficiency in search and matching models’, Journal of Monetary Economics, 55, 1401-1414.

Burdett, K., and Mortensen, D. T. (1978): ‘Wage differentials, employer size and unemployment’, International Economic Review, 39(May), 257–273.

Dolado, J. J., Jansen, M. and Jimeno, J. F. (2009): ‘On-the-Job Search in a Matching Model with Heterogeneous Jobs and Workers’, Economic Journal, Royal Economic Society, 119(534), 200-228.

Fields, G. (1975): ‘Rural urban migration, urban unemployment and underemployment and job search activity in LDCs’,Journal of Development Economics, 2, 165-187.

Fields, G. (1989):‘On-the-job search in a labour market model, ex-anti choices and ex-post outcomes’, Journal of Development Economics, 30, 159-178.

Flinn, C. and Mabli, J. (2008): ‘On-the-job search, minimum wages, and labor market outcomes in an equilibrium bargaining framework’, Working paper 91, www.carloalberto.org.

Gramlich, E. M. (1976): ‘Impact of minimum wages on other wages, employment and family incomes’, Brookings Papers on Economic Activity 2, 409- 461.

Harberger, A. (1971): ‘On measuring the social opportunity cost of labour’, International Labour Review, June, 559-579.

Harris, J. R. and Todaro, M. P. (1970): ‘Migration, unemployment and development: a two-sector analysis’, American Economic Review, 60, 126-142.

Hussey, R. M. (2005): ‘On-the-job search and wage rigidity in a general equilibrium model’, Computing in Economics and Finance 393, Society for Computational Economics.

International Labour Organisation (1972): ‘Employment, incomes and equality: a strategy for increasing productive employment in Kenya’, ILO, Geneva.

Jones, R.W. (1971): ‘A three-factor model in theory, trade and history’, in Bhagwati, J.N., Jones, R.W., Mundell, R.A. and Vanek, J. (eds), Trade, Balance of Payments and Growth; Papers in International Economics in Honor of Charles P. Kindleberger, North-Holland, Amsterdam, 365–84.

Macit, F. (2010): ‘Labor market institutions and wage and inflation dynamics’, Economic Analysis and Policy, 40(3), 393-410.

Majumder, D. (1975): ‘The urban informal sector’, IBRD Staff Working Paper, 211, Washington

McCall, J. J. (1970): ‘Economics of information and job search’, Quarterly Journal of Economics, 84, 113–126.

McDonald and Solow (1985): ‘Wages and employment segmented labour market’, Quarterly Journal of Economics, 13, 1115-1141.

Mavromatis, P.G. and verikios, G. (2008): ‘Does it matter whether market distortions are evaluated using comparative-statics or dynamics?’ Centre of Policy Studies/IMPACT Centre Working Papers , g-178.

Mincer, J. (1976): ‘Unemployment effects of minimum wages’, Journal of Political Economy, 84(4), S87- S104.

Postel, V., Fabien and Robin, J. M. (2002): ‘ The distribution of earnings in an equilibrium search model with state – dependent offers and counteroffers’, International Economic Review 43(4), 989-1016.

Samuelson, P.A. (1971): ‘Ohlin was right’, The Swedish Journal of Economics, 73(4), 365–84.

Sen, A. K. (1974): ‘Informal bases of alternative welfare approaches: aggregation and income distribution’, Journal of Public Economics 4, 387-403.

Sethuraman, S. V. (1981) (ed): ‘The urban informal sector in developing countries: employment, poverty and environment’, ILO, Geneva.

Sharma, S. (2008): ‘Capital immobility and regional inequality: evidence from India’, Enterprise Survey.

Sheng, Y., and Xu, X. (2007): ‘Terms of trade shocks and endogenous search unemployment: a two sector model of non traded goods’, DEGIT Conference Papers with number c012_025.

Squire, L. (1981): ‘Employment policy in developing countries’, (Oxford University Press, New York).

Stark, O. (1982): ‘On modelling the informal sector’, World Development 10(5), 413-416.

Stiglitz, J. E. (1982): ‘The structure of labor market and shadow prices in LDCs, in Richard. H. Sabot, ed., Migration and the labor market in developing countries’, 13- 63.