Industrial complexity and the evolution of formal employment in developing cities

Neave O'Clery, Juan Chaparro, Andres Gomez-Lievano and Eduardo Lora

Papers from arXiv.org

Abstract: What drives formal employment creation in developing cities? We find that larger cities, home to an abundant set of complex industries, employ a larger share of their working age population in formal jobs. We propose a hypothesis to explain this pattern, arguing that it is the organised nature of formal firms, whereby workers with complementary skills are coordinated in teams, that enables larger cities to create more formal employment. From this perspective, the growth of formal employment is dependent on the ability of a city to build on existing skills to enter new complex industries. To test our hypothesis, we construct a variable which captures the skill-proximity of cities' current industrial base to new complex industries, termed 'complexity potential'. Our main result is that complexity potential is robustly associated with subsequent growth of the formal employment rate in Colombian cities.

Date: 2024-10, Revised 2024-10
New Economics Papers: this item is included in nep-iue, nep-tid and nep-ure
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