Sectoral Imbalance in Two-Sector Economy with Mobility Constraint and Firm Migration
17 Pages Posted: 31 Jul 2015 Last revised: 7 Aug 2015
Date Written: July 1, 2015
We consider a two-sector economy with a low-technology agriculture sector (sector A) and a high-technology manufacture sector (sector M). We investigate the scenario with mobility constraint that worker in sector A, when unemployed, has to afford the migration cost in order to move to sector M. By developing an agent-based two-sector model with computational simulation, we show that productivity growth localized at agriculture sector with mobility constraint leads to a decrease of agricultural market price, sectoral imbalance that workers are trapped unemployed in agriculture sector, and the overall economy experiencing economic downturn. In particular, localized productivity growth leads to both sectors bearing with high unemployment, low level of aggregate output, and low level of aggregate real wage income. Regarding remedy for the economic downturn under this scenario, we investigate the policy of firm migration such that agriculture firms can migrate to manufacture sector together with their employed workers. Agent-based study shows that this policy restores employment in both sectors, with a side effect of an increase of agricultural market price.
Keywords: two-sector model, agent-based economic modeling, productivity growth, sectoral imbalance, economic downturn, mobility constraint
JEL Classification: C63, E24, L52
Suggested Citation: Suggested Citation