Wage Formation and Recurrent Unemployment

Cross-section data on non-contractual construction workers in Egypt reveal strong attachment to the sector despite demand instability. Also present are statistically significant wage differentials between construction trades.  Preliminary examination suggests that employers might be compensating their non-contractual workforce for recurrent unemployment so that they can rely on a steady supply of qualified workers. We rely on a structural model and investigate the consequences of rationing, turnover, and randomness in employment and unemployment durations. Estimates reveal that employers provide only partial compensation against recurrent unemployment. Although aggregate risk premia associated with trade membership estimated with precision, individual risk components are not.