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

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

No 9972, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 multi-sector 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 mult-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. Non-monotonicity 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: poverty reduction; overlapping generations; multisector labor market; Harris‐Todaro model (search for similar items in EconPapers)
JEL-codes: I32 O17 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2016-05
New Economics Papers: this item is included in nep-dge, nep-iue, nep-lab, nep-lam, nep-ltv, nep-net and nep-ure
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Citations: View citations in EconPapers (5)

Published - published in: Oxford Economic Papers, 2019, 71 (1), 119 - 144

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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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