The Macro Wage Curve and Labor Market Flexibility in Zimbabwe

The existence of a macro wage curve shows that wages in Zimbabwe are flexible. So, the labor market adjusts to both negative and positive economic shocks. The main cause of falling real wages in Zimbabwe is reduced economic activity.There is little available information about what determines money wages in Sub-Saharan Africa - or indeed about whether there is a stable relationship between wages, productivity, GDP, inflation, activity in the informal sector, policy changes, and unemployment.In studying how wages in Zimbabwe are affected by short- and long-run changes in variables, Verner asks: Are wages affected by prices, unemployment, increased productivity, economic activity, or policy changes? Does a macro wage curve exist? Did structural adjustment cause a structural change in labor markets?She finds that a macro wage curve does exist, so wages are flexible both generally and in the manufacturing sector. So, the labor market is able to adjust to both positive and negative shocks.The main cause of falling real wages in Zimbabwe is reduced economic activity.In the short term, wages are affected by changes in the unemployment rate. They are also affected positively by increases in productivity, prices, and economic activity.The forecasting performance of the wage determination models shows that they are valid after the implementation of structural adjustment in 1991.This paper - a product of Human Development 3, Africa Technical Families - is part of a larger effort in the region to understand how labor markets work in Africa. The author may be contacted at dverner@worldbank.org