Econometrics & Applied Economics Seminar - Esther Mirjam Girsberger (University of Technology Sydney)

Room 605, Level 6, FBE Building, 111 Barry Street, Carlton

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Title: The Puzzle of Educated Unemployment in West Africa

Abstract: Unemployment rates in urban West Africa are increasing or hump-shaped in education. This is puzzling because educated workers could downgrade to self-employment to escape unemployment. We argue that the public sector plays a role in this pattern and study how recent public policies affect (educated) unemployment, worker allocation across sectors and incomes. To this end we develop a search and matching model with heterogeneous workers who participate in a labour market with three sectors (public, private-formal and self-employment). We estimate the model using data from the West African 1-2-3-Survey. High labour market frictions. (i.e. low job arrival rates from all three sectors) and differential job destruction explain a large part of educated unemployment, while public sector wage distortions are relatively small. Policy simulations show that public sector vacancy creation crowds out the private-formal sector, pushes workers into unemployment and self-employment, and benefits those with high education at the expense of those with little or no education. Indirect labour market policies such as subsidies to private-formal vacancy posting and facilitating entry into self-employment effectively decrease unemployment, have a positive impact on incomes, and are more egalitarian. These later policies should be preferred over public vacancy creation.