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Institutional and market frictions impose costs on the reallocation of labor from low to high productivity sectors, leading to suboptimal allocations and a loss in aggregate labor productivity. Using cross-country sector-level data, we use a dynamic panel error correction model to compute the speed of sectoral labor adjustment, as well as the contribution of structural reforms in governance, labor and product markets, trade and openness, and the financial sector to lowering the costs of labor reallocation. We find that, on average, sectoral employment shares converge towards equilibrium allocations, closing about 13.7 percent of labor productivity gaps each year; this speed of labor adjustment varies across sectors and income groups. On structural reforms, we find a significant association between more efficient labor reallocation and financial market liberalization, less bureaucracy, strong judicial and regulatory environment, trade liberalization, better education and more flexible labor and product markets.

Macroeconomics --- Production and Operations Management --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- Industrial Organization and Macroeconomics: Industrial Structure and Structural Change --- Industrial Price Indices --- Economic History: Macroeconomics and Monetary Economics --- Growth and Fluctuations: General, International, or Comparative --- Measurement of Economic Growth --- Aggregate Productivity --- Cross-Country Output Convergence --- Labor Economics: General --- Macroeconomics: Production --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Institutions and the Macroeconomy --- Labour --- income economics --- Labor --- Productivity --- Labor productivity --- Total factor productivity --- Structural reforms --- Macrostructural analysis --- Labor economics --- Industrial productivity --- Morocco --- Income economics