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Wage misalignment in CFA countries: are labor market policies to blame?

  • Rama,Martin G.

It seems natural to attribute to wage rigidity (stemming from highly distortionary labor policies) the over-valuation of the CFA (Communaute Financiere Africaine) franc after the negative external shocks of the 1980s. Using a variety of data sources, the author assesses the actual rigidity of wages in CFA countries and the relationship of wage rigidity to labor policies. He shows that: a) Workers'wages are higher in CFA countries than in similar countries outside the CFA zone and higher than the earnings of similar self-employed workers within the same countries. b) Real wages are rigid (in the sense of closely following fluctuations in governmental wages and consumer prices) but there is no evidence of nominal wage rigidity. c) Labor policies may not be the source of wage misalignment and real rigidity. When compared internationally, minimum wages in CFA countries are not high enough to account for the observed wage misalignment, and their adjustment over time has been responsive to real shocks. d) Unions in the private sector seem to have been more instrumental in creating wage moderation than in creating wage drift in CFA countries. Their members usually get lower wages than similar nonunionized workers, probably because of the subordinate nature of the labor movement in CFA countries. e) Government pay policies and (possibly) limited competition in product markets are the most probable causes of wage misalignment and real wage rigidity in CFA countries.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1873.

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Date of creation: 31 Jan 1998
Date of revision:
Handle: RePEc:wbk:wbrwps:1873
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  1. Hoddinott, John, 1996. "Wages and Unemployment in an Urban African Labour Market," Economic Journal, Royal Economic Society, vol. 106(439), pages 1610-26, November.
  2. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
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  4. Devarajan, Shantayanan & Rodrik, Dani, 1991. "Do the Benefits of Exchange Rates Outweigh Their Cost? The Franc Zone in Africa," CEPR Discussion Papers 561, C.E.P.R. Discussion Papers.
  5. Blanchflower, David G & Oswald, Andrew J, 1990. " The Wage Curve," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 215-35.
    • David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, June.
  6. Karim Nashashibi & Stefania Bazzoni, 1994. "Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa," IMF Staff Papers, Palgrave Macmillan, vol. 41(1), pages 76-122, March.
  7. Levy, Victor & Newman, John L, 1989. "Wage Rigidity: Micro and Macro Evidence on Labor Market Adjustment in the Modern Sector," World Bank Economic Review, World Bank Group, vol. 3(1), pages 97-117, January.
  8. Joshua Aizenman, 1989. "The Competitive Externalities and the Optimal Seignorage," NBER Working Papers 2937, National Bureau of Economic Research, Inc.
  9. Rama, Martin & Tabellim, Guido, 1998. "Lobbying by capital and labor over trade and labor market policies," European Economic Review, Elsevier, vol. 42(7), pages 1295-1316, July.
  10. MacIsaac, Donna & Rama, Martin, 1997. "Determinants of Hourly Earnings in Ecuador: The Role of Labor Market Regulations," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S136-65, July.
  11. Lopez, Ramon & Riveros, Luis, 1990. "Do labor market distortions cause overvaluation and rigidity of the real exchange rate?," Policy Research Working Paper Series 485, The World Bank.
  12. Nelson, Joan M, 1991. "Organized Labor, Politics, and Labor Market Flexibility in Developing Countries," World Bank Research Observer, World Bank Group, vol. 6(1), pages 37-56, January.
  13. Vijverberg, W. & Van Der Gaag, J., 1990. "Testing For Labor Market Duality: The Private Wage Sector In Cote D'Ivoire," Papers 66, World Bank - Living Standards Measurement.
  14. Jean-Pierre Lachaud, 1994. "Les écarts de salaires entre les secteurs public et privé en Afrique francophone : analyse comparative," Économie et Prévision, Programme National Persée, vol. 116(5), pages 89-118.
  15. Shantayanan Devarajan & Dani Rodrik, 1991. "Do the Benefits of Fixed Exchange Rates Outweigh Their Costs? The Franc Zone in Africa," NBER Working Papers 3727, National Bureau of Economic Research, Inc.
  16. repec:oup:restud:v:47:y:1980:i:1:p:225-38 is not listed on IDEAS
  17. repec:ilo:ilowps:294512 is not listed on IDEAS
  18. repec:oup:qjecon:v:106:y:1991:i:2:p:407-43 is not listed on IDEAS
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