By: |
Basu, Arnab K. (Cornell University);
Chau, Nancy (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 multi‐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. |
Keywords: |
multisector labor market, overlapping generations, poverty reduction, Harris‐Todaro model |
JEL: |
O17 I32 |
Date: |
2016–05 |
URL: |
http://d.repec.org/n?u=RePEc:iza:izadps:dp9972&r=iue |