Open AccessEfficiency Wages in Pakistan's Small Scale Manufacturing
Author(s) -
Abid A. Burki
Publication year - 1999
Publication title -
the lahore journal of economics
Language(s) - English
Resource type - Journals
eISSN - 1811-5446
pISSN - 1811-5438
DOI - 10.35536/lje.1999.v4.i1.a1
Subject(s) - differential (mechanical device) , wage , economics , labour economics , endowment , efficiency wage , sample (material) , selection bias , endowment effect , scale (ratio) , clearing , microeconomics , medicine , philosophy , chemistry , physics , epistemology , chromatography , pathology , quantum mechanics , finance , engineering , aerospace engineering
This paper investigates wage differentials between workers insubcontracting and non-subcontracting firms, using data from a recentsurvey of small manufacturing firms in Gujranwala, Pakistan. The paper findsthat subcontracting workers receive a high wage premium and invokesefficiency wage arguments to explain this differential. The paper argues thatdue to a client/vendor monitoring problem it is optimal for subcontractingfirms to pay higher than the market clearing wages. The use of Heckman'stwo stage procedure to test for sample selection bias fails to give suchevidence. A decomposition of the wage differentials indicates thatendowment differentials partly explain higher wages for subcontractingworkers while the bulk of this wage gap is explained by differential returnsto workers' attributes.