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

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  • 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)

Abstract

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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  • M. Ali Choudhary & Saima Mahmood & Sajawal Khan & Waqas Ahmed & Gylfi Zoega, 2013. "Sticky Wages in a Developing Country: Lessons from Structured Interviews in Pakistan," School of Economics Discussion Papers 0213, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:0213
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    Cited by:

    1. Muhammad Ali Choudhary & Farooq Pasha, 2013. "The RBC View of Pakistan: A Declaration of Stylized Facts and Essential Models," SBP Working Paper Series 56, State Bank of Pakistan, Research Department.
    2. Ahmed, Waqas & Choudhary, M. Ali & Khan, Sajawal & Naeem, Saima & Zoega, Gylfi, 2014. "Determinants of wage stickiness in a developing economy," Economic Modelling, Elsevier, vol. 38(C), pages 296-304.

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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