In the past, relatively little evidence for developing countries has been available. But now we have data that enables very direct comparison between labour markets in poor and rich countries and the labour markets look remarkably similar. In particular, more profitable firms seem to pay their workers more rather than hiring more labour. There is no evidence that the labour market in Ghana, where unemployment is low, is more flexible than in the UK, where unemployment is much higher. The implication for policy is that it is easy to exaggerate the importance of labour market flexibility for low unemployment.
Unemployment is high for reasons other than inflexible labour markets.
The Size and Sources of Economic Rents in a Developing Country Manufacturing Labour Market' by Francis Teal is published in the July 1996 issue of the Economic Journal. Teal is a member of the Economic and Social Research Council-funded Centre for the Study of African Economies, University of Oxford and a Fellow of St John's College, Oxford.