Date & time
Unemployment rates in urban West Africa are increasing or hump-shaped in education. This is puzzling because educated workers could downgrade to self-employment to escape unemployment. The research argues that the public sector plays a role in this pattern, and studies how recent public policies affect (educated) unemployment, worker allocation across sectors, and incomes. The research develops a search and matching model with heterogeneous workers who participate in a labour market with three sectors (public, private-formal and self-employment). High labour market frictions and differential job destruction explain a large part of educated unemployment, while public sector wage distortions are relatively small. Policy simulations show that public sector vacancy creation benefits those with high education at the expense of those with little or no education. Policies such as subsidies to private-formal vacancy posting, and facilitating entry into self-employment, effectively decrease unemployment, have a positive impact on incomes, and are more egalitarian. These policies should be preferred over public vacancy creation.