Job Creation in a Multi-Sector Labor Market Model for Developing Economies

Ravi Kanbur, Arnab Basu, Nancy Chau and Gary Fields ()

No 11386, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper proposes an overlapping generations multi-sector model of the labor market for developing countries with three heterogeneities – heterogeneity within self-employment, heterogeneity in ability, and heterogeneity in age. We revisit an iconic paradox in a class of multisector labor market models in which the creation of high-wage employment exacerbates unemployment. Our richer setting allows for generational differences in the motivations for job search to be reflected in two distinct inverted U-shaped relationships between unemployment and high-wage employment, one for youth and a different one for adults. In turn, the relationship between overall unemployment and high-wage employment is shown to be non-monotonic and multi-peaked. The model also sheds light on the implications of increasing high-wage employment on self-employed workers, who make up most of the world’s poor. Nonmonotonicity in unemployment notwithstanding, increasing high-wage employment has an unambiguous positive impact on high-paying self-employment, and an unambiguous negative impact on free-entry (low-wage) self-employment.

Keywords: Multisector labor market; Overlapping generations; Poverty reduction; Harris-todaro model (search for similar items in EconPapers)
JEL-codes: I32 O17 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-dge, nep-iue, nep-lam and nep-ltv
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Job creation in a multi-sector labour market model for developing economies (2019)
Working Paper: Job Creation in a Multi-Sector Labor Market Model for Developing Economies (2016)
Working Paper: Job Creation in a Multi-Sector Labor Market Model for Developing Economies (2016)
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