Wage misalignment in CFA countries: Were labour market policies to blame?

Wage rigidity, stemming from highly distortive labour market policies, is a natural candidate to explain the overvaluation of the CFA franc after the adverse external shocks of the 1980s. This paper uses a variety of data sources to assess wage rigidity in CFA countries until the 1994 devaluation, and to analyse whether it was due to labour market policies. The paper shows that wages were high in CFA countries, compared with both wages in similar countries and the labour earnings of similar individuals within the same countries. It also shows that wages were rigid in real terms, in the sense of following closely the fluctuations of government wages and consumer prices, but it finds no evidence of nominal wage rigidity. Labour market policies may not be at the roots of wage misalignment and real rigidity, though. From an international perspective, minimum wages were not high enough to account for the observed wage misalignment. Moreover, their adjustment over time was highly responsive to real shocks. Private sector unions, in turn, seemed move instrumental in achieving wage moderation than wage drift. Their members usually had lower wages than similar, non-unionised workers, which probably reflects the 'subordinate' nature of the labour movement. The most likely candidates to explain wage misalignment and real rigidity in CFA countries in the 1980s and early 1990s are therefore government pay policies and (possibly) limited competition in product markets.