Labor Market Integration in Urban Ethiopia, 1994–2004

An analysis of panel data on individuals in a random selection of urban households in Ethiopia reveals large, sustained, and unexplained earnings gaps between public and private and formal and informal sectors over 1994–2004. At the same time, we find, first, that the rate of mobility increased in the two pairs of sectors. Sample transitions rates grew across survey waves, while state dependence in sector choice decreased. Second, the correlation between sector choice and earnings gaps increased over the same period. In particular, the correlation between comparative earnings and selection into the informal sector was high throughout the survey decade and increased in magnitude over the second half of the period. These results suggest that Ethiopia’s urban labor markets might be integrating.