Abstract
One dominant feature of economic development is change in the structure of the economy. Some sectors expand while others shrink. In response to changes in output markets, considerable adjustments must take place in factor markets as well. Development will therefore proceed more speedily when barriers in the factor markets are minimal. Whether or not barriers in the labor market exist, macroeconomic discussions of labor markets usually assume uninhibited flows between sectors [13]. Similarly, a large literature on earnings of wage workers has treated the wage sector as a homogeneous part of the labor market. Yet, if the wage sector is heterogeneous, model estimates have no empirical meaning and policy recommendations have no foundation.
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