Labor Market Flows and Development

We build a new cross-country dataset of harmonized rotating panel labor force surveys covering thirteen countries with widely varying average income. We document that poor countries experience flows between labor force states 2–3 times higher than in rich countries. We label higher transition rates in poor countries churn, because it seems to involve cycling among labor states rather than climbing a job ladder. This characterization draws on three key findings: (1) half of employment in poor countries is in apparently undesirable self-employed work; (2) half of the remainder is in explicitly temporary wage work; (3) poor countries have steeper tenure-wage profiles but lower tenure. We use accounting decompositions to provide suggestive evidence on the characteristics of people and firms that may explain these facts. Firm characteristics, particularly firm size, play a central role: poor countries have few large firms, which generally employ workers for longer spells rather than temporary work.