Impact of Regulatory Policies on Job Creation in Developing Countries

Abstract

The objective of this paper is to study the effects of labor market regulation policies on the allocation of labor. Specifically, it aims to highlight the effects of regulatory policies on the choice of kind of job, taking into account market segmentation and barriers to entry into the formal sector. To do so, we used the fourth Cameroon Household Survey (ECAM 4) and a self-selection model. The results show that individual and institutional factors are responsible for the misallocation of labor between the formal and informal sectors. Thus, we find that women and youth preference for informal jobs is involuntary because it is constrained by the existence of barriers to entry to the labor market. These results suggest that there is a certain amount of regulatory flexibility to increase the level of formal employment, even to transform informal jobs into formal jobs.(original abstract)