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Stick Wages in a Developing Country: Lessons from Structured Interviews in Pakistan

Listed author(s):
  • Waqas Ahmed

    ()

    (State Bank of Pakistan)

  • Muhammad Ali Choudhary

    ()

    (State Bank of Pakistan)

  • Sajawal Khan

    ()

    (State Bank of Pakistan)

  • Saima Naeem

    ()

    (State Bank of Pakistan)

  • Gylfi Zoega

    ()

    (Birkbeck College, University of London)

We contribute to the growing literature on the empirical evidence for wage rigidity using structured interviews for Pakistan. The novelty of the study consists of using data from a developing country which provides the basis for a comparison with studies performed in the developed countries. Our sample of 1189 managers finds widespread support for downward nominal wage rigidity while real wage rigidity is less pronounced although still present. Concerns about the adverse effects of wage reductions on effort, morale, the most productive workers leaving (adverse selection) and the minimum-wage largely explain the presence of nominal wage rigidity. All sectors, irrespective of time, take minimum-wage changes into account when setting wages so that the law very much sets wage expectations.

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File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp55.pdf
File Function: First version, 2013
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Paper provided by State Bank of Pakistan, Research Department in its series SBP Working Paper Series with number 55.

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Length: 58 pages
Date of creation: Mar 2013
Handle: RePEc:sbp:wpaper:55
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CENTRAL DIRECTORATE, I.I. CHUNDRIGAR ROAD, KARACHI-74000

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