Labor Mobility in Bolivia: On-the-Job Search Behavior of Public and Private Sector Employees

Labor market frictions are even more pervasive in developing countries than in Western industrialized economies. In spite of this, stochastic models of frictional markets have rarely been applied to developing countries. In this paper, we estimate structural parameters of both a simple and an extended job separation model with the purpose of understanding constraints in the labor market in Bolivia. The results confirm the hypothesis that skilled labor is scarce in Bolivia, while unskilled labor is abundantly available. This implies that skilled employees shop around for alternative employment opportunities and quit their jobs when a better opportunity arises. The quit rate among skilled employees in the private sector is much higher than the quit rate among skilled employees in the public sector. The reverse is true for the lay-off rate, and together this suggests that the private sector has difficulties maintaining its skilled labor. The private sector might try to improve its capacity to retain skilled employees by increasing wages, but the wage sensitivity parameters estimated in this paper suggest that this is not going to work – skilled employees in the private sector do not seem to reduce their on-the-job search in response to higher wages.