Unpacking the complexities of labor market dynamics: Kevin Donovan on constraints to firm growth in low- and middle-income countries

Voices in Development: A Podcast from Yale's Economic Growth Center

The upcoming 2023 Spring Meetings of the World Bank Group and the IMF with its focus on “reshaping development for a new era” is an important reminder that systemic change does not happen overnight. Strong economic development requires adequate infrastructure, and individual access to markets and opportunities. However, many communities face social, environmental, and economic barriers that hobble development. Harsh landscapes and remote settings can constrain access to markets, and crises such as the Covid-19 pandemic, food insecurity, and climate change can set back hard-earned gains in development.

How can policymakers promote the conditions that overcome these constraints, and take advantage of the role of markets in transforming labor markets and catalyzing development?

In this episode of Voices in Development, Kevin Donovan, Assistant Professor of Economics and Global Affairs and EGC affiliate, discusses his diverse body of recent work unpacking the conditions and tools needed for countries to make these market-driven transitions in an era of overlapping crises. Donovan has used macro and microeconomic models to explore knowledge transfers among Kenyan microenterprise owners, the implications of shifting labor market dynamics for policy, and the ability of last mile infrastructure such as pedestrian bridges to connect rural villages to cities in low- and middle-income countries (LMICs). In collaboration with Bridges to Prosperity, Donovan’s insights into a bridge built in Nicaragua concluded that it not only gave villages crucial access to markets for better paid jobs, but also had spillover benefits from connecting people to schools and to hospitals.

Recognizing that improving access to markets is just one component of the journey countries need to take to harness sustainable growth, Donovan’s work has used large datasets to explore the dynamics of labor markets in LMICs. While in some settings regular turnover in a labor market may be indicative of a healthy economy, the podcast explores how similar dynamics in poorer countries can reveal the insecurities present at the early stages of the job ladder.

Our results in Nicaragua suggest there are big benefits to this type of last mile infrastructure. There are lots of margins that get affected by the same intervention, the same bridge that gets built. It's true that you get access to markets – which is great for selling your crops and getting access to higher paying jobs – but you're also connecting people to schools and hospitals. It turns out to be a pretty cost effective way to help people in rural areas.
– Kevin Donovan

Kevin Donovan received his PhD in Economics from Arizona State University in 2013 and has since conducted extensive research on labor market access and firm growth in LMICs. He previously worked as an Assistant Professor in the Department of Economics at the University of Notre Dame, and his work has been published in the Quarterly Journal of Economics, Journal of Development Economics, Review of Economic Studies, and Econometrica. He is a Faculty Affiliate of EGC, the Yale School of Management, and the Yale Jackson School of Global Affairs.