Stabilisation, the real wage, employment and welfare : the case of Zambia's formal sector employees.
According to orthodox theory, a key objective of stabilisation
policies is to raise the relative price of tradeables to that
of nontradeables. This should lead to a relative expansion of
tradeables production. The factors of production that would
benefit most are those intensively utilised in the expanding
(tradeables) sector. Where nontradeables are more labour
intensive, the real consumption wage will fall with the
implementation of stabilisation policies.
This prediction is tested in this thesis within the context of Zambia's effort to adjust its economy in the 1980s. Applying a
Stolper-Samuelson-Rybczynski (SSR) model, it is concluded that
stabilisation policies did indeed result in the fall of the
real wage. This finding is in line with the experience of
other countries, suggesting that real wages were more flexible
than would be justified by concerns of orthodox theorists.
However, it is shown that the responsiveness of employment to
variations in the real product wage was statistically
insignificant. Furthermore, despite the fact that the real
product wage of tradeables relative to nontradeables moved in
the desired direction, the expected relative rise in
tradeables employment failed to occur. This demonstrates the
ract that getting the prices right may not always be a
sufficient condition for labour reallocation.
The rapid fall in the real consumption wage made it difficult
for an average formal sector household to meet its nutritional
needs. These households could be classified as poor by the end
of the 1980s. Workers responded by moonlighting, engaging in
corrupt practices and allowing their households to increase
their labour participation. The adverse effects associated
with such survival strategies demonstrate the limit to which a
government could rely on real wage flexibility in