ECONOMIC GROWTH CENTER

                       YALE UNIVERSITY

                       P.O. Box 208269
                    27 Hillhouse Avenue
                  New Haven, CT 06520-8269


               CENTER DISCUSSION PAPER NO. 772




            THE MICRO-ECONOMICS OF "SURPLUS LABOR"



                         Gustav Ranis
                        Yale University




                         February 1997








Note:  Center Discussion Papers are preliminary materials circulated
       to stimulate discussions and critical comments.

            THE MICRO-ECONOMICS OF "SURPLUS LABOR"

                                                              Gustav Ranis*
                                                              Yale University

                            ABSTRACT

     This paper examines the apparent conflict between the classical assumption

of a bargaining agricultural sector wage and the neoclassical assumption of

a competitive wage in the context of a labor surplus developing economy.  It

concludes that the relatively inelastic supply of labor hours offered by

low income small or landless farmers in the static micro-economic leisure/work

context is perfectly consistent with the persistence for some time of an

institutional real wage offered to the non-agricultural sector of the dual

economy.  Empirical evidence is brought to bear in support of that position.







Keywords: Institutional vs. Competitive Real Wage, Labor Surplus Economy,

Neoclassical vs. Classical Labor Markets















__________________________
*Economic Growth Center, Yale University, P.O. Box 208269, New Haven, CT
06520-8269.  Phone (203) 432-3632; Fax (203) 432-3635;
Email:  Gustav.Ranis@Yale.Edu.