Get complete information on the two-sector growth model of Hirofumi Uzawa

Information on the two-sector growth model of Hirofumi Uzawa

Hirofumi Uzawa’s two-sector growth model considers a Solow-Swan type of growth model with two produced commodities, a consumer good and an investment good. Both these goods are produced with capital and labour.

So we have two outputs and two inputs, of which the most interesting feature is that one of the outputs is also an input. To use the old Hicksian analogy, in the Uzawa two-sector model, we are using, labour and tractors to make corn and tractors. For the following exposition, we have benefited particularly from Burmeister and Dobell and Siglitz and Uzawa.

Now, we assume no barriers competition in the factor markets, so that there is free movement of labour and capital across sectors. This implies that the wage rate w and the profit rate r must be the same in both the consumer goods and investment goods industry.

Grigory Alexandrovich Feldman, an electrical engineer by profession, worked in Gosplan from 1923 until 1931. His report to the committee for long-term planning of Gosplan, entitled “On the Theory of the Rates of Growth of the National Income,” was published in 1928 and became the basis for the committee’s preliminary draft of a long-term plan.

Feldman’s two-sector growth model was based on the macroeconomic concepts of Karl Marx. Feldman first demonstrated that the higher the aggregate growth of an economy, the more capital had to be devoted to the producers’ goods sector.

Net investment would have to be proportional to the existing allocation of capital. The greater the capacity to produce capital goods, the faster the economy could grow, according to the model. Capital-output ratios in the two sectors could be minimised by working several shifts.

This early growth model, however, ignored likely scarcities of food, foreign exchange, and skilled labour that would result when growth accelerated. A double dip recession, which occurs when GDP growth turns negative after at least a quarter or two of positive growth, isn’t something to take lightly.

There’s only been one since the Great Depression, in 1981. It can have a devastating impact on households and businesses, knocking them off their feet again after just emerging from a recession. Many double dip recession advocates have created successful marketing businesses by promulgating worst case scenarios.

While their message delivery is certainly intended to capture media attention, many of their arguments are not entirely unfounded. The recovery has been slow to gain traction in housing and employment and the Fed has little room remaining to stimulate the economy, given that interest rates are already near zero.

Still, there are continued signs of encouragement. Businesses are starting to hire and the economy has been adding jobs since the beginning of the year. And while home sales dropped substantially in May following the expiration of the federal homebuyer credit, the rate of homeowners going into foreclosure has slowed and housing prices are likely near a bottom.

For double dip recession proponents there is no sugar- coating the news; the May employment report was terrible with the economy only creating 41,000 private sector jobs. To recover the 8.4 million private sector jobs lost from December 2007, at a rate of41,000 jobs per month, it would take over 17 years.

For sure, even the most dire pessimists are not arguing that we will only create 41,000 private sector jobs per month, but this is merely an indication of how bad the employment situation remains.

To merely keep up with population growth, the economy needs to generate 100,000 jobs a month, and it wasn’t even close in May. Even worse, the average length of unemployment continues to increase and is now up to a staggering 34.4 weeks.

Almost one half (46%) of the unemployed have been without work for over 27 weeks, almost doubling the previous high of 26%. The longer a worker is without a job, the harder it is to find one. In addition, millions of Americans remain too discouraged to even look for a job; if they were looking for work, unemployment numbers would be even worse.

Jobless claims also rose for the second week in June and the four-week moving average of unemployment claims, which smoothes out the variations in the weekly data, was flat. The level of jobless claims remains high and could signal that an earlier recovery in employment is fading.

Observers who see economic recovery believe that, while the May numbers for job creation and the early June numbers for unemployment are not all that encouraging, they are not catastrophic either.

In its June 23 release, the Fed stated that the labour market “is improving gradually,” an upgrade from “beginning to improve” in the April statement. Economic recoveries are never linear and employment improvement typically lags.

There are positive signs that employment is recovering. At the beginning of 2010, 100,000 new jobs were created a month, on average, and that figure rose to around 140,000, on average, over the past three months. If this trend is sustained, it will mean moderate job growth for the economy.

Manufacturing employers added to their payrolls for the sixth consecutive month in May, according to the Institute for Supply Management (ISM). Hours worked are trending up and are 1.2 per cent above their mid-2009 low. In addition, labour input is rising much faster as private employment trends up.

As hours increase, after-tax wage and salary income will grow, contributing to an economic recovery. In addition, job openings have increased over the past few months. An end to the fiscal stimulus plan does not necessarily translate into further employment deterioration.

Much of the stimulus was focused on unemployment benefits and aid to states, both designed to offset the impact of lost jobs. Net layoffs have halted and personal income is trending higher, setting the stage for improvement in the overall employment situation, if only incremental.

Feldman delineated five ways in which part-time work could be differentiated, two of which are examined in this research. Part time work can be permanent or temporary; and, sourced directly from an organisation or indirectly through an employment agency.

Permanent part-timers work fewer than 35 hours per week on a continuous basis in the same organisation, while temporary workers are hired for limited periods of time to deal with fluctuating workloads or short- term personnel shortages.

Part-timers can source their work directly from an organisation and be paid by the same organisation. Or, they could get their job assignments through an employment agency, in which case they will be paid by the agency. Job attitudes and behaviours among part-timers differ across different part-time work arrangements.

Generally, temporary part-timers display the poorest job attitudes and lowest commitment to their organisations. On the other hand, because of the sustained contributions they make to their employers, permanent part-timers are viewed as more valuable. They tend to get higher wages, more fringe benefits and greater job challenge and hence display better job attitudes.

Therefore, we predicted that permanent part-timers experience higher levels of job satisfaction, work motivation, and lower level of intention to turnover compared to temporary part-timers. Feldman suggested that it is unlikely for employment agencies to invest in training for part-timers who are on their payroll, while organisations are likely to do so.

The short-term nature of their job assignments makes it uneconomical for agencies to invest in training part-timers. On the other hand, organisation- hired part-timers generally stay with the same employee for a longer period. It therefore makes sense for them to invest in training to improve the part- timers’ skills and help them integrate into the work group.

Feldman’s suggestion regarding the contrasting attitudes of agencies and organisations toward training of part-timers certainly holds true in the Singapore context.

As part-timers are likely to view training as beneficial to their career development, we hypothesised that organisation-hired part-timers experience higher levels of job satisfaction, work motivation and lower level of intention to turnover compared to agency- hired part-timers.