Wages and Labor Management in African Manufacturing∗

Using matched employer-employee data on 10 African countries, this paper examines the relationship beween wages, worker supervision, and labor productivity in manufacturing. Wages increase with Þrm size for both production workers and supervisors. We develop a two-tier model of supervision that can account for this stylized fact and we Þt the structural model to the data. Employee data is used to derive a Þrm-speciÞc wage premium that is purged of the effect of worker observables. We Þnd a strong effect of both supervision and wages on effort and hence on labor productivity. Labor management in sub-Saharan Africa appears problematic, with much higher supervisor-to-worker ratios than in Morocco and a higher elasticity of effort with respect to supervision. ∗We thank Takashi Kurosaki, Pramila Krishnan, Jim Malcolmson, David Newbery, Stephen Smith, and Francis Teal as well as seminar participants in Oxford and Cambridge and participants to the 2002 NEUDC conference for their useful comments. Måns Söderbom thanks UNIDO for Þnancial support. We thank the World Bank for making the data available. †Department of Economics, University of Oxford, Manor Road, Oxford OX1 3UQ. Email: [email protected]. Fax: +44(0)1865-281447. Tel: +44(0)1865-281446. ‡Centre for the Study of African Economies, University of Oxford, Manor Road, Oxford OX1 3UQ. Email: [email protected]. Fax: +44(0)1865-281447. Tel: +44(0)1865-271954.