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The role of labor market frictions in structural transformation

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  • Kevin Donovan
  • Todd Schoellman

Abstract

Growth is closely related to structural transformation, the reallocation of economic activity among sectors. A well-functioning labor market plays an important role in this process by enabling workers to find employment in the growing, more productive sectors. We review the literature on labor market frictions that limit worker flows, slow structural transformation, and trap workers in poverty. The three main areas of focus are the extent of sectoral wage gaps, labor market dynamics, and evidence on specific frictions. Evidence in each area points to the presence of frictions that hinder worker reallocation. The literature also suggests policies that may help remediate frictions and improve worker mobility. We conclude by noting several open questions that provide promising avenues for future work.

Suggested Citation

  • Kevin Donovan & Todd Schoellman, 2023. "The role of labor market frictions in structural transformation," Oxford Development Studies, Taylor & Francis Journals, vol. 51(4), pages 362-374, October.
    • Handle: RePEc:taf:oxdevs:v:51:y:2023:i:4:p:362-374
    DOI: 10.1080/13600818.2023.2276702
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    Cited by:

    1. Linda Calabrese & Rhys Jenkins & Lorena Lombardozzi, 2024. "The Belt and Road Initiative and Dynamics of Structural Transformation," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(3), pages 515-547, June.
    2. Christoph Albert & Paula Bustos & Jacopo Ponticelli, 2021. "The Effects of Climate Change on Labor and Capital Reallocation," NBER Working Papers 28995, National Bureau of Economic Research, Inc.
    3. Christoph Albert & Paula Bustos & Jacopo Ponticelli, 2024. "The effects of climate change on labor and capital reallocation," Economics Working Papers 1887, Department of Economics and Business, Universitat Pompeu Fabra.

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