The Costs of Dualism

This paper shows how to calibrate a two-sector general equilibrium model of production using a small number of parameter assumptions and readily available data. The framework is then used to analyze the costs of labor market dualism. The paper quantiÞes the effects of rural-urban wage differentials and urban unemployment on total output, wages and returns to capital, factor shares, and sectoral structure. One of the main Þndings is that labor market rigidities can have a major impact on the extent of industrialization.