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Are African wages too high?
One thing that has always struck me in the African countries I have worked is that the real wages (i.e. wages adjusted for the cost of living) of African formal sector workers seem to be incredibly high, at least compared to that of workers in China or India. Given that firms in China and India seem to be more productive than their African counterparts, it creates a double disadvantage for African workers, and raises the question of why the situation continues. Why don't manufacturing wages fall in Africa, stimulating more jobs for more people at wages still higher than those available in agriculture or informal business?
Why, when I run a survey in rural Uganda, do youth with the same education and experience expect a wage three to four times higher than the youth I worked with in India? I don't begrudge anyone anywhere a living wage. It's the relative differential that puzzles me, and that could be keeping Africa from doing business globally.
There are probably lots of plausible reasons. Perhaps we ought to consider (and get data on) the informal sector in Africa, which could be larger and have more moderate wages than the formal sector ones. It may be that all my notions and data about African wages are erroneous.
Another possibility, however, is that the largest employers of skilled workers in most African countries are international NGOs and the local government. They are competing, in many cases, for the same pool of skilled and semi-skilled workers as the manufacturers and service sector firms. Neither the government or NGOs, moreover, seem to set wages according to the local market or local conditions, and it requires little imagination to wonder whether they set their wages higher than the market would normally do.
That's from Chris Blattman, a political science professor at Yale; here is Chris's consistently interesting blog.
Posted by Tyler Cowen on January 21, 2008 at 05:42 AM in Economics | Permalink
Comments
Efficiency wages, perhaps?
Posted by: Luis Perenna at Jan 21, 2008 6:21:01 AM
How far would you extend this argument?
Now, one purpose of a price floor on books is to encourage a greater diversity of books. Economies of scale mean that a bestseller can be sold for a lower price than a midseller. A price floor means that the Tom Clancy's and Harry Potters can't drive out less popular books with lower prices.
Now, another way that diversity is encouraged with a trade-off against price is through copyright. By granting a monopoly, the price of books is kept higher, in an attempt to incentivize more different books to be written and published.
Now suppose a Monsieur Bezos starts publishing books in the US. In a struggle for free markets he announces he will ignore copyright laws. First books: $4.99 copies of "Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist" by Tyler Cowen; and "Entrepreneurial Economics: Bright Ideas from the Dismal Science by" Alexander Tabarrok. No royalties will be paid to the authors.
Would the response be "Way to go, Monsieur Bezos! My advice? Tell the state, laissez nous faire!"
Posted by: Theophile Escargot at Jan 21, 2008 6:46:41 AM
Damn, I'm an idiot: posted to the wrong entry. Please ignore (or delete).
Posted by: Theophile Escargot at Jan 21, 2008 6:48:25 AM
Having lived in both India and Africa, I'd say the cost of living must have something to do with it. Basics staples aside, a country like Uganda produces almost nothing of use to the common man (except maybe soap), so many household items have to be imported using scarce foreign currency which makes them very expensive. India has, for years, been relatively self sufficient and you can get by for a remarkably small amount of money.
Posted by: tom at Jan 21, 2008 7:54:08 AM
I agree with the post in that skilled Africans are surprisingly highly paid. The reason is in the level of education. There are very few educated people in many african states and a high level of demand from local government, NGOs, and (often foreign owned) business. Pushing the price up. The other ditorting factor is the brain drain of outward migration.
Posted by: Stuart at Jan 21, 2008 9:48:26 AM
In Africa, each wage earner is expected to financially support a very large number of people (not just immediate family). This social expectation may have something to do with it, similar to the old days of lifetime employment in the West when a paternalistic employer would often pay married men more than unmarried men.
Posted by: at Jan 21, 2008 10:35:24 AM
I've noticed the same phenomenon here in Yemen. The workers at NGOs and the government do FAR better than the typical workers. I've always assumed that it has something to do with the ruling class keeping power. Mix that in with tribal alliances, and you get a significant population with higher than usual wages. The private companies that do well here tend to be cozy with the government. Construction, travel, import/export, etc. all have to go through many governmental hoops. My guess is that they are welcomed by those companies in order to keep competition at bay... It's starting to wear thin on the disenfranchised southerners. The country was supposedly "unified" back in 1994 I think, but what has happened looks the same as if the north had conquered the south. "The south will rise again!" may well be true here...
Isaac Crawford
Blogging in Yemen
www.isaharr.com
Posted by: Isaac Crawford at Jan 21, 2008 11:41:26 AM
Maybe it's the expectation that their currency could become worthless in a relatively short amount of time. What good is earning 100 of local currency today when it could be worthless in year's time?
Posted by: Xmas at Jan 21, 2008 1:29:40 PM
Another reason is that Africans' reference points are either too high (corrupt politicians, foreigners and connected business men) or too low (the rest of the people). Since there are few "middle-class" reference points, aspirations aim high. Anyone with an education wants a lot of money -- legal or not -- and they will keep moving until they get it.
Posted by: David Zetland at Jan 21, 2008 3:02:39 PM
How about unions, minimum wages set for mineral extraction, and a sort of Dutch Disease resulting from aid money?
Put it all together and you get artificially high wages for anyone in the formal sector who can manage to get a job, combined with a high unemployment rate for those who can't get a formal job, combined with high underground employment for those astute enough to skirt government wage regulations, high government taxes, and the unofficial government tax of corruption that results from a lack of peace, easy taxes, and a tolerable administration of justice.
Posted by: happyjuggler0 at Jan 21, 2008 4:30:47 PM
