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Job Creation in a Multi-Sector Labor Market Model for Developing Economies

Author

Listed:
  • Basu, Arnab K.

    () (Cornell University)

  • Chau, Nancy H.

    () (Cornell University)

  • Fields, Gary S.

    () (Cornell University)

  • Kanbur, Ravi

    () (Cornell University)

Abstract

This paper proposes an overlapping generations multi-sector model of the labor market for developing countries with three heterogeneities – heterogeneity within self-employment, heterogeneity in ability, and heterogeneity in age. We revisit an iconic paradox in a class of multi-sector labor 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 a different one for adults. In turn, the relationship between overall unemployment and high-wage employment is shown to be non-monotonic and mult-peaked. The model also sheds light on the implications of increasing high-wage employment on self-employed workers, who make up most of the world's poor. Non-monotonicity in unemployment notwithstanding, increasing high-wage employment has an unambiguous positive impact on high-paying self-employment, and an unambiguous negative impact on free-entry (low-wage) self-employment.

Suggested Citation

  • Basu, Arnab K. & Chau, Nancy H. & Fields, Gary S. & Kanbur, Ravi, 2016. "Job Creation in a Multi-Sector Labor Market Model for Developing Economies," IZA Discussion Papers 9972, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9972
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Job Creation in a Multi-Sector Labor Market Model for Developing Economies
      by maximorossi in NEP-LTV blog on 2016-06-30 18:29:33

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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

    Keywords

    multisector labor market; overlapping generations; poverty reduction; Harris‐Todaro model;

    JEL classification:

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

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