Discrimination in a Search-Match Model with Self-Employment

In this paper, we build a search-match model to help explain differences in the outcomes of women and men in urban African labour markets. First, we use longitudinal data from a panel collected in four of Ghana's largest cities to establish a set of stylised facts relating to the size of different sectors in the economy, the earnings gaps that persist within those sectors, and transitions between different jobs. We then construct a model, which allows for individual heterogeneity and participation in both self- and wage-employment, as well as discrimination against female workers in the wage sector. By numerically solving and simulating this model, we show that wage sector discrimination leads to average earnings gaps in all sectors of the economy, even if the underlying ability distribution is the same for both sexes. This result arises because discrimination creates extra frictions for women, making it harder for them to select jobs according to comparative advantage. We also conduct a series of experiments to examine how women and men may be affected differently by government policy, and consider the robustness of our results to alternative assumptions about individual heterogeneity.