Market power, firm performance and real wage growth in Zimbabwean manufacturing

Abstract

This paper uses a two year panel of data on 600 Zimbabwean manufacturing workers and the employers to examine several aspects of the labor market response to the reforms introduced in the 1991 structural adjustment program. The analysis then uses this evidence to explore a number of hypotheses about the functioning of formal urban labor markets in Zimbabwe, with particular attention to the issue of rent sharing. First, as one would expect, liberalization of trade did indeed act to shift employment from import competing sectors to export sectors, although total manufacturing employment was basically unchanged. Second, real wages in manufacturing fell for most workers. Third, the pattern of wage changes across sectors and firms is consistent with a view of labor markets as noncompetitive. The evidence provides support for the idea that a rent-sharing process of wage determination, rather than one based on efficiency wages or government intervention, is an appropriate characterization of this labor market.