Wage Rigidity: Micro and Macro Evidence on Labor Market Adjustment in the Modern Sector

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Abstract
Aggregate data on wages and employment may provide misleading indicators of labor market conditions. They may suggest inappropriate wage policies in the face of the rising unemployment experienced in many developing countries during the 1980s. Such increases in unemployment are often attributed to wage rigidities. A cursory review of aggregate data for the modern sector in Côte d'lvoire would support this view, suggesting that employment declined during the 1979–84 recession due to an increase in real wages. Examination of disaggregated data from two labor force censuses of the modern sector, however, shows that real wages declined for specified classes of labor. The work force was characterized by greater education, training, and experience; workers with a given level of attributes received a lower real wage by the end of the recession than before it. Despite this drop in real wages, employment in the modern sector declined.

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