> Because of the characteristics of those 'employed in these sectors they find that this large

> increase in employment has no effect upon the poorest quintile, whilst the richest quintile

> gains by 4%. In Cambodia, Nicita, Olarreaga and Soloaga (2002) show that the impact of

> an increase of 50,000 employees in the industrial sector would have a large positive impact on rural households in the lowest expenditure decile with at least one member switching to the sector. But because of the relative probability of obtaining such jobs, the overall benefit to rural households is lower than the gain experienced by urban households.

A similar but somewhat more sophisticated methodology is used by Bourgignon and others in micro-simulation models of distribution changes (Bourguignon, Foumier et al. 2000). Bourguignon et al. estimate an individual level wage equation correcting for selection bias using the Heckman method. They then estimate wage and farm labour participation equations sequentially for each member of the household (starting with the household head) as a multinomial logit choice between (i) inactivity (ii) wage work (iii) work on the family farm (iv) work in non-farm businesses and (v) a combination of (ii) & (iii). The multinomial logits incorporate variables reflecting household characteristics which may have an influence upon individual participation decisions.

> The advantage of both of the above methods of modelling employment and wage income is that they only require readily available household survey data. In particular all that is needed is information on employment by sector, wages (or employment income and the quantity of labour supplied) and household characteristics. Using only this information it is possible to "allocate" individuals to jobs and determine their likely wage, given a known increase or decrease in employment. However, the extent of the employment change is exogenous usingthe above approach. Ideally, the expansion or contraction of each sector resulting from reform could be predicted by a general equilibrium model, but,

> as noted above, the resources required to construct a CGE model may preclude this option in many countries. One therefore needs a mechanism for estimating the potential employment impact of a structural reform. There are two components to this problem: firstly, it is necessary to estimate the impact of the price change induced by reform on sectoral output; and secondly it is necessary to estimate the impact of the change in output upon employment and wages.

One ad hoc approach to the first part of the problem would be to use investment climate surveys to obtain estimates from senior managers of companies in each sector about the sort of growth rates they anticipate and what difference they might expect policy reforms to make. Such estimates are of course highly subjective at an individual level, but assuming that knowledge of the prospects for growth is reasonably common across each industry, aggregate estimates of growth expectations may be at least as accurate as historical or model based estimates. Furthermore, if detailed firm-level surveys are available it may be possible to cross-check whether growth expectations are "reasonable" given the margins and financing structure of firms within the industry.

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