Declining high-wage industries and structural adjustment policy

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Title: Declining high-wage industries and structural adjustment policy
Authors: Barry, Frank
Permanent link: http://hdl.handle.net/10197/1464
Date: Apr-1989
Abstract: In this paper a sector-specific disturbance generates unemployment that co-exists with relatively high wages in the adversely-affected industry. Previous analyses have interpreted this unemployment as "classical" in nature, assuming it to be caused by arbitrary wage rigidities, and have concluded that some degree of subsidization of the contracting sector is warranted on efficiency grounds. The present paper proposes an alternative "structural" explanation in which the privately-optimal response of workers and firms within a unionised high-wage industry leads to inefficiently low levels of labour transfer and a correspondingly high rate of sectoral unemployment. Subsidisation of the declining industry under these circumstances reduces efficiency. Several policies capable of achieving the optimal allocation of labour are explored, and the associated tax costs and income distributional effects analysed.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Subject LCSH: Unemployment--Effect of wages on
Wages
Structural adjustment (Economic policy)
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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