Rent-Sharing, Hold-Up, and Manufacturing Wages in Cote D'Ivoire

Abstract

Labor costs in Francophone Africa are considered high by the standards of low-income countries, at least in the formal sector. Workers appear to have some bargaining power and, in Cote d'Ivoire, can force renegotiation of labor contracts in response to new investments.

Labor costs in Francophone Africa are considered high by the standards of low-income countries, at least in the formal sector. Are they a brake on industrialization or the result of successful enterprise development? Are they imposed on firms by powerful unions or government regulations, or a by-product of good firm performance?

Azam and Ris empirically analyze what determines manufacturing wages in Cote d'Ivoire, using an unbalanced panel of individual wages that allows them to control for observable firm-specific effects. They test the rent-sharing and hold-up theories of wage determination, as well as some aspects of efficiency-wage theories.

Their results lean in favor of both rent-sharing and hold-up, suggesting that workers have some bargaining power and that in Cote d'Ivoire workers can force renegotiation of labor contracts in response to new investments.

This paper - a product of Public Services for Human Development, Development Research Group - is part of a larger effort in the group to understand the impact of labor market policies and institutions on economic performance. 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).