Abstract
This paper investigates the relationship between sectoral growth patterns and employment outcomes. A broad cross-country analysis reveals that in middle-income countries, employment responds more to growth in less productive and more labor-intensive sectors. Employment in middle-income countries is susceptible to a resource curse, and grows rapidly in response to manufacturing and export manufacturing growth. Within Brazil, Indonesia, and Mexico, the effects of different sectoral growth patterns are context dependent, but differences in sectoral growth effects on employment and wages are substantially reduced in states or provinces with higher measured labor mobility. Consistent with this, aggregate employment and wage effects of growth by sector are close to uniform when examined over longer time horizons, after labor has an opportunity to adjust across sectors. The results reinforce the importance of growth in more labor-intensive sectors, and suggest that job mobility may be an important mechanism to diffuse the benefits of capital-intensive growth.
Highlights
Developing countries are typically characterized by large and persistent productivity and earnings differences across sectors, with large numbers of workers toiling in low-productivity jobs in agriculture or small-scale trading
Is growth in high or low-productivity sectors more strongly associated with employment creation? Before addressing this question, we first put changes in employment and unemployment into context by comparing how they evolve with per capita gross domestic product (GDP)
Turning to our case study countries of Brazil, Indonesia and Mexico, we find that the effects of high and low productivity sector growth are not uniform across contexts, and may potentially differ based on institutional factors or structural features of the labor market
Summary
Developing countries are typically characterized by large and persistent productivity and earnings differences across sectors, with large numbers of workers toiling in low-productivity jobs in agriculture or small-scale trading. In analyses of growth over longer periods using census data from these countries, we find little evidence for differential employment or wage effects of growth across sectors over longer horizons, when technologies and labor markets have an opportunity to adjust, with strikingly similar point estimates on agriculture, industry and services growth. Consistent with this differential between short- and long-run effects, we find that higher measured labor mobility strongly attenuates the differences between the growth effects of high and low productivity sectors in all three countries in our shorter-run analyses..
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