Labor Market Dynamics and Development

Abstract

We build a dataset of harmonized rotating panel labor force surveys covering 42 countries across a wide range of development and document three new empirical findings on labor market dynamics. First, labor market flows (job-finding rates, employment-exit rates, and job-to-job transition rates) are two to three times higher in the poorest as compared with the richest countries. Second, employment hazards in poorer countries decline more sharply with tenure; much of their high turnover can be attributed to high separation rates among workers with low tenure. Third, wage-tenure profiles are much steeper in poorer countries, despite the fact that wageexperience profiles are flatter. We show that these facts are consistent with theories with endogenous separation, particularly job ladder and learning models. We disaggregate our results and investigate possible driving forces that may explain why separation operates differently in rich and poor countries.

Inequality in Russia over time and over the life cycle

“…Lagakos et al (2018) and Jedwab et al (2023) argue, respectively, that returns to experience are twice as high in rich than in poor economies, and that workers in rich economies accumulate twice as much human capital. Donovan et al (2023), using cross‐country micro data on labor market dynamics, argue that more severe search frictions could also be an impediment to life‐cycle wage growth in poor economies. All this evidence is consistent with low in Russia (and other less‐developed economies) and a flat life‐cycle profile of earnings inequality.…”

Subcontracting Linkages in India's Informal Economy

“…The proportion of informal micro‐enterprises exhibiting dynamic entrepreneurial characteristics is often constrained by the lack of a conducive business environment and limited access to avenues for human capital formation (Grimm et al., 2012). Others, however, view the informal economy as distress‐driven and backward in nature, absorbing the excess labour force in the economy (Chen and Carré, 2020; Donovan et al., 2023; La Porta and Shleifer, 2014).…”

Unpacking the Persistence of Informality

“…the Chilean economy has one of the lowest informality shares in Latin America, which is expected given the development of the country (Donovan et al, 2023). Some jobs for lowskilled workers tend to be covered by formal contracts in Chile, but probably not in other countries.…”

“…However, these estimates are hardly directly comparable due to the development gap between African and Latin American economies and the different frequency of data collected: quarterly in Latin American countries and ranging between two and four years for African economies. For a sample of 49 countries, Donovan et al (2023) show that employment exit rates are much higher for informal jobs and that the informal-to-formal gap widens as per capita income declines. Hence, lower informality rates and shorter informality durations in Chile are expected, as the latter authors suggest, because the Chilean economy has one of the highest per capita income levels in Latin America.…”

“…If informality is a way to avoid unemployment, generates low living standards, and shows high persistence, it becomes a trap for workers that appropriate policies could mitigate. On the other hand, if informality provides a temporary shelter from unemployment (Fernández and Meza, 2015;Donovan et al, 2023) but workers can transition to formal jobs easily, the informal sector may provide some self-insurance, especially in economies with poor social security or restrictive credit access.…”