Publication
This Working Paper presents new evidence from eight countries on how formal labor markets evolve with economic development, showing that greater formality and labor market fluidity are driven by more workers entering the formal sector and are associated with higher life-cycle wage growth.
This paper studies formal employment dynamics using linked employer–employee data from eight countries spanning a wide income range from Kenya to Chile. First, we show that formality rates increase with development, both between and within countries, because more workers enter the formal sector, not because they spend more time in formal jobs. Second, formal labor market fluidity increases with development, as workers hold more formal jobs, spend less time in each job, and less time between jobs. Third, greater fluidity is associated with higher life-cycle wage growth, which is largely accounted for by within- rather than between-firm wage gains.
Published on: 22nd May 2026
