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A Model of Comparative Advantage with Matching in the Urban Tanzanian Labour Market

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  • Andrew Kerr

Abstract

In this paper I build an equilibrium search model of the urban Tanzanian labour market that explains the choice between wage and self-employment and the variation in earnings across and within these sectors. Self-employment is very common in urban Tanzania and survey data show both that there are large overlaps in the distribution of earnings in private wage employment and self-employment and that there is little movement between wage and self-employment. This suggests that self-employment represents a worthwhile alternative to wage employment in small, low-productivity firms for the majority of urban Tanzanians, in contrast to the traditional view of African labour markets in which wage employment in small firms and self-employment are lumped together as the informal sector.

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2012-21.

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Date of creation: 2012
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Handle: RePEc:csa:wpaper:2012-21

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  1. El Badaoui, Eliane & Strobl, Eric & Walsh, Frank, 2007. "Is There an Informal Employment Wage Penalty? Evidence from South Africa," IZA Discussion Papers 3151, Institute for the Study of Labor (IZA).
  2. Neil Rankin & Justin Sandefur & Francis Teal, 2010. "Learning & Earning in Africa: Where are the Returns to Education High?," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2010-02, Centre for the Study of African Economies, University of Oxford.
  3. Paolo Falco & Andrew Kerr & Neil Rankin & Justin Sandefur & Francis Teal, 2010. "The Returns to formality and Informality in Urban Africa," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2010-03, Centre for the Study of African Economies, University of Oxford.
  4. Ulyssea, Gabriel, 2010. "Regulation of entry, labor market institutions and the informal sector," Journal of Development Economics, Elsevier, Elsevier, vol. 91(1), pages 87-99, January.
  5. Linda Y. Wong, 2003. "Can the Mortensen-Pissarides Model with Productivity Changes Explain U.S. Wage Inequality?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 21(1), pages 70-105, January.
  6. Mathan Satchi & Jonathan Temple, 2008. "Online Appendix for "Labor Markets and Productivity in Developing Countries"," Technical Appendices, Review of Economic Dynamics 06-167, Review of Economic Dynamics.
  7. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(539), pages 1105-1129, 07.
  8. Fafchamps, Marcel & Quisumbing, Agnes R, 2005. "Marriage, Bequest, and Assortative Matching in Rural Ethiopia," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 53(2), pages 347-80, January.
  9. Zenou, Yves, 2008. "Job search and mobility in developing countries. Theory and policy implications," Journal of Development Economics, Elsevier, Elsevier, vol. 86(2), pages 336-355, June.
  10. Mathan Satchi & Jonathan Temple, 2008. "Labour Markets and Productivity in Developing Countries," Studies in Economics, Department of Economics, University of Kent 0805, Department of Economics, University of Kent.
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