Question: This exercise will demonstrate the gains to total national output from a better distribution of an economy's labor force to higher productivity activities. Choose a less-developed country that interests you or one you are assigned. If you wish, you can use one of the countries for which you collected data in the previous problem. Find the following:
a the share (i.e. percentage) of total output (GDP) produced in agriculture, industry, and services for a recent year. You can typically find the data in Table 4.1 in the World Development Indicators available online at http://worldbank.org. Go to the "Country at a Glance" section in the middle of the page; select your country to find the data in the "Structure of the Economy" section.
b Then find the share (i.e. percentage) of the labor force working in agriculture, industry, and services from Table 2.3 in the same World Development Indicators online. Choose data for the period closest to the year you selected for your data in part a of this question. You will have to average the male and female rates if both are given. If your country does not have data for both GDP and labor shares, you will need to pick another country.
c Now, calculate the productivity of each 1 percent of the labor force in these three sectors, i.e., what percent of total GDP is produced by 1 percent of the workers in agriculture, industry, and services (hint: divide the output share in each sector by its labor share);
d Is the labor force in this country distributed optimally, that is, could total GDP be increased by shifting labor from one sector to another? Explain.
e Is there "surplus" labor in agriculture in your country? Or some other sector? Explain what is meant by "surplus" labor (hint: there is a discussion of surplus labor in the section of this chapter on the Lewis model).
