Labour mobility and the optimal wage differential: Labour allocation as a disequilibrium process†

Abstract

Any study of labour allocation must take into account the fact that the industria structure of the economy is bound to change over time and that, this will put pressure on each kind of labour to redistribute itself continuously. Differing rates of labour-saving technical progress will have the same effect. Since labour is hardly perfectly mobile, this implies that its allocation should be regarded as essentially a disequilibrium process and that dynamic criteria should replace the usual comparative static criteria of efficiency. The purpose of this paper is to outline such a treatment. The analysis has deliberately been conducted at a relatively high level of abstraction because even a simple theoretical framework seemed to be lacking. The most important empirical feature that needs to be supplied is of course the labour mobility function. It may well be found that neither of the two cases distinguished in the paper corresponds satisfactorily to what is actually observed. Two well-known studies by Reddawa...