In the context of non-diversifiable and sector-specific risks in labour markets, we show that the resulting factor market distortion - attributable to an endogenous intersectoral wage differential - can provide a possible rationale that explains why larger wage dispersion prevails in developing...

This paper presents a capability-augmented model of on the job search, in which sweatshop conditions stifle the capability of the working poor to search for a job while on the job. The augmented setting unveils a sweatshop equilibrium in an otherwise archetypal Burdett-Mortensen economy, and...