Income Distribution, Demand Structure and Employment: The Case of Peru

The present growth process of Peru is characterized by a relatively low rate of labour absorption in the modern firms (together with growing urbanization and urban under-employment). This fact, which is common in underdeveloped countries, has been usually attributed to factor market imperfections and/or imported technology. This study attempts to estimate empirically the hypothesis that the rate of industrial employment may also be influenced by the demand structure which is associated with the existing income distribution profile in Peru. The result is that income transfers from the rich to the poor would increase industrial employment. This ‘redistribution effect’ is not remarkably high, however. For example, a 3 per cent increase in industrial employment would require a selective redistribution of 6 per cent of Peru's national income. © 1975, Taylor & Francis Group, LLC. All rights reserved.