Wage Misalignment in CFA Countries: Are Labor Market Policies to Blame ? (*)

Wage rigidity, stemming from highly distortive labor market policies, is a natural candidate to explain the over-valuation of the CFA Franc after the adverse external shocks of the 1980s. This paper uses a variety of data sources to assess the actual rigidity of wages in CFA countries and to analyze how it relates to their labor market policies. The paper shows that wages are high in CFA countries, both compared to wages in similar countries and to the labor earnings of similar individuals within the same countries. It also shows that wages are rigid in real terms, in the sense of following closely the fluctuations of government wages and consumer prices, but finds no evidence of nominal wage rigidity. Labor market policies may not be at the roots of wage misalignment and real rigidity though. From an international perspective, minimum wages are not high enough to account for the observed wage misalignment. Moreover, their adjustment over time is shown to be highly responsive to real shocks. Private sector unions, in turn, seem more instrumental in achieving wage moderation than wage drift. Their members usually get lower wages than similar, non-unionized workers, which probably reflects the “subordinate” nature of the labor movement. The most likely candidates to explain wage misalignment and real rigidity in CFA countries are therefore government pay policies and (possibly) limited competition in product markets.