Abstract
Large productivity gaps across sectors persist and the process of structural transformation is stagnant in many developing economies. This wedge between observed and optimal labor allocations reflects the presence of institutional and market frictions, which impose costs on the optimal reallocation of labor from low- to high-productivity sectors. Using a panel of cross-country sector-level data, I estimate a dynamic panel error correction model that captures the dynamics of sectoral labor flows. The model estimates provide a new set of stylized facts on the dynamics of the structural transformation process and a measure of the magnitude of frictions facing labor flows. In addition, I analyze the contribution of labor regulations and reforms to the pace at which labor flows across economic sectors. Results suggest that policy reforms need to steer between the goal of easing job creation and destruction, while supporting labor supply incentives to reallocate through strong social nets, labor protection, and risk sharing.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics
Reference38 articles.
1. Hnatkovska, V. and Lahiri, A. (2018) Urbanization, Structural Transformation and Rural-Urban Disparities in China and India.
2. TIME SERIES BEHAVIOUR AND DYNAMIC SPECIFICATION*
3. Wages and prices in the United Kingdom: A study in econometric methodology;Sargan;Econometric Analysis for National Economic Planning,1964
4. Labor Market Rigidities: At the Root of Unemployment in Europe
5. Ciccone, A. and Papaioannou, E. (2008) Entry regulation and intersectoral reallocation.