This paper proposes a new index of sectoral labor distortion using employment and valueadded
shares. We show that this index is highly correlated with growth both crosssectionally
and over time. We also use it to compare the degree of distortion among
countries and identify sectors where the potential payoffs in terms of growth from reforms
could be large. The regression analysis in the paper shows that education and various
structural reforms have potential to improve the efficiency of sectoral labor allocation.