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

  • M. Ali Choudhary

    (University of Surrey and State Bank of Pakistan)

  • Saima Mahmood

    (State Bank of Pakistan)

  • Sajawal Khan

    (State Bank of Pakistan)

  • Waqas Ahmed

    (State Bank of Pakistan)

  • Gylfi Zoega

    (Birkbeck College)

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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Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0213.

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Length: 48 pages
Date of creation: Mar 2013
Handle: RePEc:sur:surrec:0213
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