Intersectoral Adjustment and the Dynamics of Wages and Employment Opportunities

This paper analyses the dynamics of labour-market adjustment in response to sectoral shifts using a two sector model. We focus on the interaction between the level of wages and the productivity of finding a job. The model highlights to different speeds of adjustment under the assumption of imperfect intersectoral labour mobility and "myopic" labour market perceptions by potential migrants. It is possible for an increase in labour demand in one sector to lead to a temporary fall in that sector's relative wage. The dynamics of intersectoral migration may be characterized by "labour-overflows." Finally, the expanding sector may offer its unemployed workers a relatively higher probability of finding a job only in the early stages of adjustment -- during later stages that probability may fall below its initial value.