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Wage and Productivity Premiums in Sub-Saharan Africa

  • Johannes Van Biesebroeck

Using a matched employer-employee data set of manufacturing plants in three sub-Saharan countries, I compare the marginal productivity of different categories of workers with the wages they earn. A methodological contribution is to estimate the firm level production function jointly with the individual level wage equation using a feasible GLS estimator. The additional information of individual workers leads to more precise estimates, especially of the wage premiums, and to a more accurate test. The results indicate that equality holds strongly for the most developed country in the sample (Zimbabwe), but not at all for the least developed country (Tanzania). Moreover, the breakdown in correct remuneration in the two least developed countries follows a distinct pattern. On the one hand, wage premiums exceed productivity premiums for general human capital characteristics (experience and schooling). On the other hand, salaries hardly increase for more firm-specific human capital characteristics (tenure and training), even though these have a clear productivity effect.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-291.

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Length: 35 pages
Date of creation: 18 Jun 2007
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-291
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  1. Tybout, James, 1998. "Manufacuring firms in developing countries - how well do they do, and why?," Policy Research Working Paper Series 1965, The World Bank.
  2. Lorraine Dearden & Howard Reed & John Van Reenen, 2005. "The impact of training on productivity and wages : evidence from British panel data," Economic History Working Papers 779, London School of Economics and Political Science, Department of Economic History.
  3. Johannes Van Biesebroeck, 2007. "Wages Equal Productivity. Fact or Fiction?," Working Papers tecipa-294, University of Toronto, Department of Economics.
  4. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2004. "The Effects of Structural Reforms on Productivity and Profitability Enhancing Reallocation: Evidence from Colombia," Working Papers 134, Barcelona Graduate School of Economics.
  5. Torbjørn Hægeland & Tor Jakob Klette, 1997. "Do Higher Wages Reflect Higher Productivity? Education, Gender and Experience Premiums in a Matched Plant-Worker Data Set," Discussion Papers 208, Statistics Norway, Research Department.
  6. Fafchamps, Marcel, 1997. "Introduction: Markets in sub-saharan Africa," World Development, Elsevier, vol. 25(5), pages 733-734, May.
  7. Muendler, Marc-Andreas, 2007. "Labor Reallocation in Response to Trade Reform," University of California at San Diego, Economics Working Paper Series qt3cm38535, Department of Economics, UC San Diego.
  8. Judith K. Hellerstein & David Neumark, 2007. "Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 31-71 National Bureau of Economic Research, Inc.
  9. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Anders Isaksson & Abena Oduro & Remco Oostendorp & Catherine Pattillo & Måns Söderbom & Francis, 1998. "Rates of return on physical and human capital in Africa's manufacturing sector," CSAE Working Paper Series 1998-12, Centre for the Study of African Economies, University of Oxford.
  10. Jones, Patricia, 2001. "Are educated workers really more productive?," Journal of Development Economics, Elsevier, vol. 64(1), pages 57-79, February.
  11. Van Biesebroeck, Johannes, 2005. "Firm Size Matters: Growth and Productivity Growth in African Manufacturing," Economic Development and Cultural Change, University of Chicago Press, vol. 53(3), pages 545-83, April.
  12. Knight, J B & Sabot, R H, 1987. "Educational Policy and Labour Productivity: An Output Accounting Exercise," Economic Journal, Royal Economic Society, vol. 97(385), pages 199-214, March.
  13. Simon Appleton & John Hoddinott & John MacKinnon, 1996. "Education and health in sub-Saharan Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(3), pages 307-339.
  14. Bruno Crépon & Nicolas Deniau & Sébastien Pérez-Duarte, 2003. "Wages, Productivity and Worker Characteristics : A French Perspective," Working Papers 2003-04, Centre de Recherche en Economie et Statistique.
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