African labour market analysis has often emphasised average wage differentials
across sectors. A high-paying “protected” or formal sector that is usually assumed
to comprise unionised jobs in large firms and public sector employment is
assumed to exist together with a low paying “sink”, informal or “murky” sector
comprised of self-employment and wage employment in unregistered small firms.
A labour market with these characteristics has been described as “segmented”,
and much effort has been exerted in testing whether labour markets in a variety
of countries are indeed segmented. In this chapter I suggest an alternative approach
to modeling the Tanzanian labour market and focus on the distinction
between wage and self-employment and the role of comparative advantage and
individual heterogeneity in determining where to work and earnings in each of
these sectors.