A recent study released by Kevin Donovan, Will Jianyu Lu & Todd Schoellman, on Labour Market Dynamics and Development, make an interesting read, especially when findings are correlated to realities in Pakistan. The study argues that a dynamic labour market is an essential component of a well-functioning economy. It allows people to find work and then climb the job ladder by moving to better-paying jobs. These job-job transitions are an important direct contributor to life cycle wage growth. They also provide workers with an incentive to acquire skills, further boosting wage growth. At the aggregate level, a dynamic labour market speeds the reallocation of workers toward more productive jobs and sectors, which in-turn boosts GDP.

A prominent concern among policymakers is that labour markets in developing countries are failing in these objectives: they do not create the right jobs or reallocate workers to them, and this has important consequences for poverty and growth. The evidence so far is tangential. For example, we know that workers’ wages grow half as much over the life cycle in developing economies, but not whether this is necessarily a failure of the job ladder. We also have substantial evidence that there are large, persistent gaps in wages and labour productivity between sectors and regions, but again we do not know for sure whether this stems from labour market frictions. Through compiling a new set of micro data and its analysis thereafter, the research’s first contribution is to show that standard labour........

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