Labor Market Integration in Urban Ethiopia, 1994-2004

Notable changes that may have influenced the functioning of the labor market directly included the cessation of centralized recruitment and deployment of civil service personnel and employees of publicly owned companies. Particularly, the revocation of rules that prohibited mobility of employees across sectors increased labor market flexibility. The end of job guarantees by the public sector reduced their attraction, encouraging individuals to engage in other forms of employment or business activities. Existing formal tests of segmentation rely on a host of restrictive assumptions, including the log normality of potential earnings and the absence of state dependence in mobility costs, tastes, and skills. It is important in this context that the parameter of state dependence researchers estimate measures true state persistence rather than merely reflecting unobserved individual heterogeneity. Even then, true state dependence could be a consequence of state dependence in mobility costs, taste, or skills, as it could be of entry barriers, of which only the latter defines segmentation.