Wage Setting Behaviour of Firms in Industrial Estates of Khyber Pakhtunkhwa, Pakistan

The objective of the study is to analyze the wage setting behaviour of firms. For this study four major industrial estates of Khyber Pakhtunkhwa. Using stratified random sampling, data is collected from 342 firms. Multinomial logistic model is used to estimate the effects of determinants on wage change. Most of the firms change wage rate once in a year. Majority of the firms follow time-dependent wage policy. Half of the firms, which are following time-dependent wage policy, change the wage rate at the end or start of the fiscal year. Most of the firms are not found to index wages. Moreover, the percentage of firms not involved in wage indexation is higher for daily workers than for permanent worker. Labor productivity, employment level in the economy, government regulations, taxes, demand for the product, and inflation are important factors of wage change, but the most important factor is the labour productivity and least important is pressure from the labour union. Imperfect competition and size of the firms are the important determinants of wage flexibility, while wage indexation, information set of expected inflation and fringe benefits provided to workers are the important determinants of wage rigidity. It is important for Pakistan to avoid wage cuts at the times of recession and disinflationary policies be carefully designed as sacrifice ratio, albeit moderate, is not zero.

Wage indexation as a means of ensuring that real wage levels are raised

The article considers issues related to the state guarantee of ensuring an increase in the level of real wage content, the definition of the concept of “wage indexation”, the procedure for its implementation and the mechanisms for determining the amount based on the approaches developed in the science of labor law and judicial practice taking into account priorities in the field of social and labor relations.

Wage Compression within the Firm: Evidence from an Indexation Scheme

We revisit the role of labour market institutions by showing how they affect the sharing of firm-specific rents between employers and employees. We look at an Italian wage indexation mechanism (‘Scala Mobile’) that compressed the distribution of wages, imposing real wage increases at the bottom of the distribution. After developing a simplified version of a search model with intra-firm bargaining and on-the-job search, we document that skilled workers received lower wage adjustments when employed at firms with many unskilled workers and they tended to move towards more skill-intensive firms. Moreover, the system drove the least skill-intensive firms out of the market.