Labor Surplus Area – Definition

Cite this article as:"Labor Surplus Area – Definition," in The Business Professor, updated March 22, 2019, last accessed October 19, 2020,


Labor Surplus Area Definition

Labor Surplus Area is commonly known as LSA. It can be defined as civil jurisdiction. In previous 2 calendar years, the average yearly unemployment rate was figured 20% and sometimes more than this percentage. This is the highest unemployment rate of the civilian population comparing with statistics concerning civilian unemployment in other states in the same twenty-four months as a certain referenced period.  

A Little More on What is a Labor Surplus Area

The Labor Statistics Bureau is responsible to produce official estimations regarding civil unemployment rate to ETA and thus this information is used for classification purposes. The aggregated data concerning with unemployment rate of all states also includes the data for the territories administered by the USA such as Puerto Rico Commonwealth in the Caribbean. The  primary LSA classification is known as “floor unemployment rate.” The rules indicate that a state cannot be listed as LSA until its unemployment rate is either 6% or exceeding from this figure. The state should have a 10.0% rate of “ceiling unemployment”. This is how a civil jurisdiction with a 10% unemployment rate is classified as LSA.

The government designates the status of LSA to certain countries, areas, and towns where the unemployment rate is higher. The designation of LSA areas is performed on the basis of the results of the annual survey. The results are correlated to procurement policies of the federal government to minimize the level of unemployment. The basic criteria for civil  jurisdictions are mentioned as under:

  • Only that city can be categorized as LSA that has a minimum population of 25,000 and this is verified by Census Department; or
  • A town with a population of 25,000 or more in New York, Pennsylvania, New Jersey or Michigan that has powers or operates like cities. This can be categorized LSA territory; or
  • Any county that has not been categorized in civil jurisdictions in above   A or B categories and a country or counties in Massachusetts, Connecticut or Rhode Island; or
  • A “balance of country” based on a county that has no facilities similar to cities or townships and has been recognized in above-given paragraph A or paragraph B; or
  • A county that is equivalent in a population of 25,000 in any Puerto Rico Commonwealth or within the state of New England.

References for Labor Surplus Area

Academic Research on Labor Surplus Area

  • • Development of the labor surplus economy: theory and policy.,Fbi, J. C. H., & Ranis, G. (1964).  In this paper, the writer comprehensively throws light on the development of economy of the labour surplus with the help of theory and method concerning with labour surplus economic development.
  • • A model of labor migration and urban unemployment in less developed countries, Todaro, M. P. (1969).The American economic review, 59(1), 138-148. This paper presents a model of economic behaviour, migration scale from rural to urban areas and wage differences that are discussed in academic literature. The model shows the demand for urban labour and labour supply issues in the present industrial economy. The model evaluates certain implications behind using alternative strategies to eradicate unemployment and the migration phenomena in less progressive countries. The model examines 2 stages of migration that focus on unskilled migration from rural areas and second getting a permanent job. This 2 stage analysis examines the implications behind industrial growth and rural-urban economic differences. The model highlights constraints behind the reduction of migration to urban industrial sector with a proposal to make rural life attractive for rural labor.  


  • Worker mobility in a labor surplus area, Gegan, V. F., & Thompson, S. H. (1957). Monthly Lab. Rev., 80, 1451. This review paper shows increasing worker mobility to labour surplus areas causing severe labour migration crisis.
  • Wages and employment in a laborsurplus economy, Reynolds, L. G. (1965). The American Economic Review, 55(1/2), 19-39. The paper investigates wage issues and workers’ searching attitude for employment opportunities in the labour surplus economy.
  • • The homestead act and the labor surplus, Shannon, F. A. (1936). The American Historical Review, 41(4), 637-651. The writer explores the results of the homestead act in relation to labour migration that intensified the labour surplus issue.
  • Further results on the macroeconomic effects of AIDS: the dualistic, laborsurplus economy, Cuddington, J. T. (1993). The World Bank Economic Review, 7(3), 403-417. This research evaluates AIDS macroeconomic effects and altered model of slow growth. The allocation of labour and financial resources are always enough but resources misallocation spoils the outcome. The examination shows the underperformance of economies in developing countries such as sub-Saharan Africa. Underemployment is another issue that has not been discussed in previous economic impact models. The economic data from Tanzania concerning AIDS economic impact suggests limited economic growth in all sectors. This caused 15-25% lower GDP comparing with 2010 GDP growth. The research also shows output lost because of AIDS as it is similar to output gains. However, improvements can be achieved by flexible labour market policies.
  • • A counterfactual analysis on unlimited surplus labor in rural China, Cai, F., & Wang, M. (2008). China & World Economy, 16(1), 51-65. The research uses a counterfactual approach to evaluate the magnitude of conventional wisdom related to agriculture and farming with respect to the Chinese surplus labour market. The research shows striking statistics about decreasing surplus labourers in Chinese rural areas. The results of using the counterfactual approach show the use of new changed technology in the agriculture field, increasing labour competitiveness and reduced income gap between rural-urban labour.  
  • • Trade and development in a labor surplus economy, Barbier, E. B., & Rauscher, M. (2007). The BE Journal of Economic Analysis & Policy, 7(1). The research investigates a model that evaluates the trade scale between two countries in the agricultural sector and commodities manufacturing sector. The financial returns of the manufacturing sector with monopolistic competition conditions is positive. However, increased activity in the agriculture field may not be positive between the two countries because of negative welfare constraints.  

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