The Role of Sectoral Growth Patterns in Labor Market Development

49 Pages Posted: 20 Oct 2012

See all articles by Javier Arias

Javier Arias

University of Chicago - Booth School of Business - Economics

Jean Lee

Harvard University

David Locke Newhouse

World Bank


This paper investigates the relationship between sectoral growth patterns and employment outcomes. A broad cross-country analysis reveals that in middle-income countries, employment responds more to growth in less productive and more labor-intensive sectors. Employment in middle-income countries is susceptible to a resource curse, and grows rapidly in response to manufacturing and export manufacturing growth. Within Brazil, Indonesia, and Mexico, the effects of different sectoral growth patterns are context dependent, but differences in sectoral growth effects on employment and wages are substantially reduced in states or provinces with higher measured labor mobility. Consistent with this, aggregate employment and wage effects of growth by sector are close to uniform when examined over longer time horizons, after labor has an opportunity to adjust across sectors. The results reinforce the importance of growth in more labor-intensive sectors, and suggest that job mobility may be an important mechanism to diffuse the benefits of capital-intensive growth.

Keywords: economic growth, production structure, employment, unemployment, productivity

JEL Classification: O11, J20

Suggested Citation

Arias, Javier and Lee, Jean and Newhouse, David Locke, The Role of Sectoral Growth Patterns in Labor Market Development. IZA Discussion Paper No. 6926, Available at SSRN: or

Javier Arias (Contact Author)

University of Chicago - Booth School of Business - Economics ( email )

Graduate School of Business
1101 East 58th Street
Chicago, IL 60637
United States

Jean Lee

Harvard University ( email )

Cambridge, MA 02138
United States

David Locke Newhouse

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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