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Job creation in a multi-sector labour market model for developing economies


  • Arnab K Basu
  • Nancy H Chau
  • Gary S Fields
  • Ravi Kanbur


This paper proposes an overlapping generations multi-sector model of the labour market for developing countries with four heterogeneities—heterogeneity within self-employment, heterogeneity in job experience, heterogeneity in pathways to self-employment, and heterogeneity in ability. We revisit an iconic paradox in a class of multi-sector labour 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 another 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. Non-monotonicity in unemployment notwithstanding, increasing high-wage employment leads to an unambiguous increase in high-paying self-employment, and an unambiguous decrease in free-entry (low-wage) self-employment.

Suggested Citation

  • Arnab K Basu & Nancy H Chau & Gary S Fields & Ravi Kanbur, 2019. "Job creation in a multi-sector labour market model for developing economies," Oxford Economic Papers, Oxford University Press, vol. 71(1), pages 119-144.
  • Handle: RePEc:oup:oxecpp:v:71:y:2019:i:1:p:119-144.

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    Cited by:

    1. Luc Christiaensen & Joachim De Weerdt & Ravi Kanbur, 2017. "Cities, towns, and poverty: Migration equilibrium and income distribution in a Todaro-type model with multiple destinations," Working Papers 434, ECINEQ, Society for the Study of Economic Inequality.

    More about this item

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements


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