Allocation of Labor in Urban West Africa: Insights from the Pattern of Labor Supply and Skill Premiums

Using comparable data from five West African capitals, we assess the rationale behind development policies targeting high rates of school enrollment through the prism of allocation of labor and earnings effects of skills across the formal and informal sectors, and not working. We find that people with high levels of education allocate to the small formal sector, while less educated workers allocate to the informal sector. While high levels of education are given more value in the relatively smaller sectors of salaried employment, observed skills like education appear to be fairly unprofitable in the larger self‐employment sector. The fact that only the small formal sector in urban West Africa both seems to absorb highly educated workers and provide high skill premiums may be an important reason for the observed low demand for education and high dropout rates.