Wage Misalignment in Cfa Countries: Are Labor Market Policies to Blame?

Abstract

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.

It seems natural to attribute to wage rigidity (stemming from highly distortionary labor policies) the overvaluation of the CFA franc after the negative external shocks of the 1980s. Using a variety of data sources, Rama assesses the actual rigidity of wages in CFA countries and the relationship of wage rigidity to labor policies. He shows that:

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.

Real wages are rigid (in the sense of closely following fluctuations in government wages and consumer prices) but there is no evidence of nominal wage rigidity.

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.

Unions in the private sector seem to have been more 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.

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.

This paper - a joint product of the Africa Region and the Development Research Group - is part of a larger effort in the Bank to understand the effects of labor market regulations in developing countries. The study was funded by the Bank's Research Support Budget under the research project The Impact of Labor Market Policies and Institutions on Economic Performance (RPO 680-96). The author may be contacted at [e-mail].