Beiträge zur Jahrestagung des Vereins für Socialpolitik 2019: 30 Jahre Mauerfall - Demokratie und Marktwirtschaft - Session: Development Economics IV No. D21-V2
Cross-sector labor reallocation is associated with costs at the micro level ranging from the costs of geographical relocation and skill change/adaptation to unemployment. We show that monotonous reallocation paths minimize the aggregate reallocation costs in the three-sector framework (relating to agriculture, manufacturing, and services), where we assume that the aggregate reallocation costs are indicated by the strength of cross-sector labor reallocation. By using this result and the (qualitative) labor-reallocation "laws" based on the theoretical/empirical literature consensus, we derive the cost-minimizing development strategy for a developing country. We use these results to discuss some well-known structural/trade strategies and compare the historical reallocation costs across countries.