Industrial Specialization, Catching‐up and Labour Market Dynamics

This paper presents a dynamic model as a heuristic tool to discuss some issues of changing industrial specialization which arise in the context of catching‐up processes of (technologically) less advanced economies and the impact which various scenarios of such catching‐up processes might have on the labour market dynamics both in the advanced and in the catching‐up economies. In analysing the evolution of international specialization, we demonstrate the twin pressures exerted upon the industrial structures of “northern” economies: competition from “type‐A southern” economies, which maintain a comparative competitive strength in labour‐intensive and less skill‐intensive branches, and competition from “type‐B catching‐up” economies, whose catching‐up increasingly focuses upon branches in which the initial productivity gaps and hence the scope for catching‐up are the highest. The contrast between these two catching‐up scenarios allows the explicit analysis of the implications of “comparative advantage switchovers” between northern and southern (type B) economies for labour market dynamics.