Employment choice and mobility in multi‐sector labour markets: Theoretical model and evidence from Ghana

Abstract Using detailed household survey data on male workers in Ghana, the author tests a theoretical model incorporating capital market failure and labour market segmentation into sectors of (largely formal) wage employment and (largely informal) self‐employment and family enterprise employment, in which credit‐constrained individuals draw self‐employment capital from family assets. The data show very low rates of mobility across the three sectors, the highest mobility being observed among family enterprise workers, and the lowest, among the self‐employed. The findings show no robust evidence that wage earnings ease liquidity constraints, while suggesting that both liquidity and skill transferability constraints are important for mobility.