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Regional Product Price Differences and the Sectoral Distribution of Labor in Less Developed Countries

Journal of Political Economy 1977 85(3), 549-568
A model is presented in which open unemployment exists as a result of adverse terms of trade in rural areas, combined with a binding urban wage floor. In contrast to previous investigations involving sector-specific wage rigidity, the present analysis considers a third sector, transport, in addition to farming and manufacturing and deals with transport-infrastructure investments as policy instruments affecting employment. The three-sector model predicts that extensive unutilized land will be present despite high urban unemployment rates, a common phenomenon in sub-Saharan Africa. The model is tested empirically using primary data from the 1970 agricultural census of Zaire.