Cumulative e¤ects of labor market distortions in a developing country

  • Pehr-Johan Norbäck
  • Published 2000


This paper considers a small open economy with an input-output industrial structure that creates vertical linkages and multiple equilibria. An imperfect labor market is introduced by assuming unionized labor. It is shown that a deregulation of the labor market may trigger a large, discontinuous expansion of industrial output, as reduced wage-costs start a circular, cumulative process in which expansions of the up-and downstream industries promote each other. Centralization of collective bargaining may, however, also be conducive to industrialization.

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Cite this paper

@inproceedings{Norbck2000CumulativeEO, title={Cumulative e¤ects of labor market distortions in a developing country}, author={Pehr-Johan Norb{\"a}ck}, year={2000} }