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]

Comments

[madpad]

I wonder if Blattman has considered other comparisons?

Blattman mentions Northern Uganda. Uganda has over a million displaced citizens. Torture, beatings, kidnapping and political oppression are common - especially in the north.

I don't doubt aid groups have skewed the economy. But this post is disingenuous nonsense that's NOT telling the whole story.

All three - China, India and Africa - have plenty of corruption, to be sure.

But where corrupt officials in China and India seem more likely to leverage starving populations into willing workers, corrupt psychopaths in Africa leverage their starving populations into conscripts and rape victims.

[Ventifact]

I'm not clear on what argument is in play here. Even if NGO's and governmental jobs raise the average wage far above where it should be, that's not the same as raising the minimum wage necessary to attract a worker.

Perhaps the unreasonably high wages soak up the most attractive potential workers of Africa and prevent them from becoming part of the private workforce, thereby stifling real economic development that comes from having talented people in industry and commerce. But no one will sit around unemployed just because the only job they can get pays less than the job they'd rather have -- are there really enough NGO/gov't jobs to soak up all the skilled workers?

And anyway, to what degree is industrial development dependent on local talent during the initial phase? Wouldn't we be speaking more about foreign talent making use of a low-skill, low-wage local workforce that couldn't possibly be being dissuaded from taking industrial employment just because there are also higher-than-market-wage jobs in an office they can't obtain?

[charlie]

As Kevin Carson might say, "vulgar libertarianism watch"...

Rather than wages that are "too high" (and yet still don't manage to cover the cost of living... funny, that, I'd say the problems in Africa have much more to do with collusion between corrupt governments and corrupt multinationals. How many times have these governments enticed foreign businesses with 0% tax rates and generous subsidies -- not to mention the occasional governmental aid in beating up labor organizers -- only to get screwed over when these companies move over to the next country in search of the next sweetheart deal (not unlike professional sports teams in this country)?

The problem isn't wages -- it's corrupt leaders and corrupt corporations.

[Madog]

From what I understand, in many parts of Africa you're expected to send money back to your extended family and clan if you have a job that pays cash. So high paying civil service type jobs are in demand, and if you don't get them it's better to have nothing than to have to give all of your wages to relatives who "know" you get paid well.

[The Ron Paul Africa Report]

The only reason the Rwanda Civil War stopped was because it was time to cash the UN make-work paychecks.

[hj]

Re: madog

It would be interesting to hear how much of that effect is in play for impoverished communities in the US that have strong community bonds. I'm thinking of Native Americans getting off the reservation and the pressure of many successful African-Americans from poor backgrounds to employ friends, relatives, etc.

[The Wine Commonsewer]

If RP said any of this he'd be a racist.

[joshua corning]

So you are wondering if the left turned Africa into a toilet?

Yes it has.

[joshua corning]

But where corrupt officials in China and India seem more likely to leverage starving populations into willing workers, corrupt psychopaths in Africa leverage their starving populations into conscripts and rape victims.

You forgot the UN/NGO paychecks.....they leverage their starving populations into conscripts, rape victims and UN/NGO paychecks.

[Parmenides]

I hope the writer will let us know how much he is paid. We can then judge if it is unreasonably high in comparison with writers in Hollywood, say.

[MUFASA]

I THINK THAT THE REPORT ON AFRICAN WAGES BEING 3 TO 4 TIMES HIGHER THAN PEOPLE OF OTHER COUNTRIESCOULD BE A FALSITY. SOMEONE MAY BE TRYING TO LEAD US TO BELIEVE THAT THIS IS TRUE SO THAT OTHERS WILL NOT TRULY TRY TO HELP THE POOR IN AFRICA. I HAVE FOUND IT INCREDIBLY UNREAL TO SEE THE PEOPLE IN AFRICA STARVING TOO DEATH FOR CENTURIES AND THIS STARVATION BY NOW HAVE COME TO AN END. WE HAVE THE RESOURCES IN THE UNITED STATES TO BRING IN THE EQUIPMENT TO CREATE WATER SUPPLIES TO THE PEOPLE AND BE ABLE TO IRRIGATE THE LAND AREAS, SO THAT FARMERS CAN GROW THE FOOD. I BELIEVE THIS IS SOMETHING WAS INTENTIONALLY DONE TO KILL THE PEOPLE OFF. HOWEVER EVEN IN THE AFRICANS MOST WEAKEST STATE THEY BREED CHILDREN (OFF SPRING) AND THEY SURVIVE, WHEN OTHER MIGHT HAVE PERISHED INSTANTLY. THIS IS A SIGN FROM GOD THAT THESE PEOPLE SHALL NOT BE KILLED OFF!!!!!!!

[Tim Worstall]

More here:
http://www.globalisation.eu/blog/regulation/africa%27s-problem%3a-wages-are-too-high-200801211290/
Along with links to reports about, umm, mandated minimum wages being too high in Africa.

[Grand Chalupa]

So you are wondering if the left turned Africa into a toilet?

Yes it has.

And it was doing so well!

[kerem tibuk]

People in Africa or some other god forsaken place,

Are poor because their productivity is low.

Their productivity is low because capital levels are very low.

Capital levels are low because people can't save.

People can't save because there are no property rights.

This is the golden rule and you dont need detailed studies in different cases.

[Mr. Steven Crane]

as always, hard-hitting analysis in the comment section.

[madpad]

Their productivity is low because capital levels are very low.

No, their productivity is low because their options are to farm or join armed warlords to keep from being hacked to death.

Capital levels are low because people can't save.

No, capital levels are low because they aren't producing anything to sell.

People can't save because there are no property rights.

No, people can't save because they have no jobs, no money, no income and no long-term options. They have nothing to save and what little they get goes to the backlog of immediate needs like food and medical treatment.

Property rights are, no doubt, fundamental to the economic freedom and success of any country.

But when most of the citizenry is living like Mad Max, property rights run a way distant second to some level of rational enforcement of rational laws. This is a hard thing to achieve when armed lunatics with machetes and AK-47s are wreaking havoc throughout the country.