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Unemployment in Informal Labor Markets in Developing Countries
By Emily Breza & Supreet Kaur
Developing countries typically exhibit low rates of rural wage employment. For example, in India, male workers whose primary source of earnings is wage labor report working on only 46 percent of days per year.1 Bangladesh has a similarly low 55 percent rate of employment among landless males, and the rates are even lower in sub-Saharan Africa.
What do these low employment rates mean? One possibility is that they reflect extremely high involuntary unemployment. Alternatively, the rates could be an outcome of reasonably well functioning labor markets in which workers are simply choosing self-employment, which tends to be high in poor countries. These two possibilities have drastically different implications for understanding how well labor markets work and what role, if any, there is for policy intervention.
Source NBER
