Productive Effect of Consumption-Revaluing the Social Cost of Employing Unskilled Labour in Developing Countries

Abstract

Little & Mirrlees , following the traditional investment theory, have attributed a social cost component to the additional consumption of the unskilled labour in the advanced industry in developing countries. However, recent research has shown that increased consumption of such;labour is part of human capital formation, as it (additional consumption)increases labour productivity, value of which is greater than that of the resournes used for the extra consumption. As the extra consumption of the unskilled labour in the advanced industry. increases 'uncommited government income' rather than reduces it, Appreciate shadow wage rate of unskilled labour in advanced industry has to be zero.