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Thursday, October 11, 2018 at 11:40am to 1:10pm
Uris Hall, 498
Markus Poschke - McGill University, CIREQ and IZA
The variation of employment status across countries follows three broad patterns: Labor markets in poor countries exhibit (1) systematically higher self-employment rates and (2) much higher rates of unemployment relative to wage employment. In addition, (3) countries with high unemployment relative to wage employment have higher self-employment rates even conditional on GDP per capita. I interpret high unemployment to employment ratios as evidence of labor market frictions, and develop a simple heterogeneous-firm search and matching model with choice between job search and self-employment to analyze their effect. Quantitative analysis of the model, separately calibrated to eight countries, suggests that variation in labor market frictions can explain almost the entire variation in not only unemployment, but also self-employment across the calibration countries. The model also generates joint variation in unemployment and self-employment accounting for a third or more of their relationship in the data. In addition, the analysis shows that labor market frictions affect output not only via their effect on employment, but also by pushing searchers into low-productivity own-account work.