Real wages and the demand for labour in Ghana`s manufacturing sector

ABSTRACT: Real wages in Ghana have fallen substantially over the last twenty years. The question posed by this paper is whether this evidence for wage flexibility implies a competitive market clearing labour market. It is argued that it does not. There is sufficient flexibility in the production structure to ensure that a rapid growth of labour demand can be absorbed at declining average real wages while maintaining a substantial differential across workers based on firm characteristics. Indeed it is possible the differential has been increasing in the recent past. Declining real wages are not indicative of a competitive labour market, or of market clearing, in the sense that a uniform wage exists for the same quality of labour. Falling real wages are indicative of a labour market in which social security provisions are absent and investment is insufficient to raise labour demand faster than supply. A decline in wages is associated with a fall in productivity. It is possible that output is rising.