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Despite the significance of limited labor mobility across sectors, few attempts have been made to produce dynamic models of sectoral adjustment that are consistent with perfect foresight and, yet, flexible enough to allow for a variety of dynamic experiments. This paper proposes a simple perfect-foresight model of two-sector economies in which aggregate sectoral movement of labor takes place through the process of demographic change. The model is tractable enough that one can easily examine the effects of intertemporally complicated relative price shocks (both exogenous and endogenous) under a variety of assumptions on technology. Copyright 1992 by The Review of Economic Studies Limited.
Kiminori Matsuyama (Wed,) studied this question.