Returns to work are lower in developing countries: Is it due to their sectoral and urban structure?

Policy brief Cities

  • Developing economies have more workers in sectors or locations where there may be less scope for learning, thus, this brief asks whether their economic and urban structure could explain their lower levels of economic development?
  • This study obtains measures of returns to work experience across various dimensions using data from 23 million individuals in more than 1,000 household surveys and census samples for 145 countries.
  • The findings suggest services, cognitive occupations, the formal sector, and urban areas exhibit relatively higher returns than non-services, manual occupations, the informal sector, and rural areas, respectively.
  • Despite these “return gaps”, reallocating labour to the best sector, occupation, firm type, or location in the country does little to bridge the gap in aggregate returns between developed countries and developing countries.
  • The authors use cross-country data on income, economic and political institutions, and social norms, and find that countrywide characteristics appear to be the main drivers of aggregate returns.