The unequal effect of economic development on perceived labor market risks and welfare

Abstract Economic development and accompanying structural changes of the economy create new opportunities, however not everywhere and not for everyone. Development increases the demand for skilled labor, improving their welfare perceptions, but low-skilled workers feel more insecure and worse off economically. This adverse effect results from a mismatch between local labor demand and individual skill sets. To measure the development levels of people's local environments, I combine geocoded Afrobarometer data and night lights. Bayesian multilevel analysis confirms that the highly skilled are economically most dissatisfied in lagging areas, while the low-skilled are less satisfied in highly developed environments. These findings emphasize the importance of local conditions for welfare perceptions and show the unequal effect of development leaving behind large parts of the population.