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Stick Wages in a Developing Country: Lessons from Structured Interviews in Pakistan

Waqas Ahmed, Ali Choudhary (), Sajawal Khan (), Saima Naeem and Gylfi Zoega

No 55, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: We contribute to the growing literature on the empirical evidence for wage rigidity using structured interviews for Pakistan. The novelty of the study consists of using data from a developing country which provides the basis for a comparison with studies performed in the developed countries. Our sample of 1189 managers finds widespread support for downward nominal wage rigidity while real wage rigidity is less pronounced although still present. Concerns about the adverse effects of wage reductions on effort, morale, the most productive workers leaving (adverse selection) and the minimum-wage largely explain the presence of nominal wage rigidity. All sectors, irrespective of time, take minimum-wage changes into account when setting wages so that the law very much sets wage expectations.

Keywords: Wage rigidity; structured interviews (search for similar items in EconPapers)
JEL-codes: E5 F4 O1 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2013-03
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