Employment sectors and wage differential in West Africa

Purpose This article examines the effect of employment sector choice on wage distribution in West Africa. Employing a methodological approach that accounts for endogeneity issues related to sector selection, the study distinguishes between two dimensions of employment: the institutional classification of jobs (formal versus informal employment) and employment status (wage employment versus self-employment). The findings reveal heterogeneous effects, with significant variations across groups of countries. Regarding employment contract types, the results suggest that, overall, formal contracts yield the highest wage returns for salaried workers. However, when examining employment status, the evidence is less conclusive. Based on these findings, we propose the following policy recommendations: (1) promoting formalization through productivity-linked incentives; (2) implementing gender-sensitive policies to facilitate sectoral and occupational mobility; (3) reassessing skill premiums and strengthening demand-side interventions and (4) reconceptualizing self-employment, shifting its perception from a survival strategy to a productive and sustainable form of employment. Design/methodology/approach Endogenous switching regression model. Findings The findings reveal heterogeneous effects, with significant variations across groups of countries. Regarding employment contract types, the results suggest that, overall, formal contracts yield the highest wage returns for salaried workers. However, when examining employment status, the evidence is less conclusive. Originality/value The contribution of the article is threefold. First, it addresses the issue of wage heterogeneity between employment sectors. Second, the article employs a rigorous methodology that accounts for the endogeneity related to employment sector choices. Lastly, it conducts separate analyses across eight countries within the same sub-region, enabling cross-country comparisons to identify converging factors as well as specific national characteristics.