Real wages and the demand for labour in Ghana's manufacturing sector

Real wages in Ghana have fallen substantially over the last twenty years. The question posed by this paper is whether this evidence for wage flexibility implies a competitive market clearing labour market. It is argued that it does not. There is sufficient flexibility in the production structure to ensure that a rapid growth of labour demand can be absorbed at declining average real wages while maintaining a substantial differential across workers based on firm characteristics. Indeed it is possible the differential has been increasing in the recent past. Declining real wages are not indicative of a competitive labour market, or of market clearing, in the sense that a uniform wage exists for the same quality of labour. Falling real wages are indicative of a labour market in which social security provisions are absent and investment is insufficient to raise labour demand faster than supply. A decline in wages is associated with a fall in productivity. It is possible that output is rising.