Africa: Are Wages Too High?

Counterintuitive economist's observation for the day: the real problem with wages in Africa is that they are too high. From Yale University development economist Chris Blattman:

…the big fact that jumps out at you when you look at industrial production in Africa is not the ups and downs, but just how little of it there is.

……..

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?…..

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.

Could the government and NGOs be distorting local wage markets and pricing African industry out of the world market? I don't know, but this is a question some economist ought to start investigating.

The Center for Global Development, where Blattman is a visiting fellow.

Katherine Mangu-Ward raises some other questions about aid to Africa and what good it does, or doesn't, do.

[Link via Tyler Cowen]