Pakistan Institute of Development Economics

PDR

THE PAKISTAN DEVELOPMENT REVIEW 

Inter-industry Wage Differentials in Pakistan

The essential feature of a perfectly competitive labour market is that workers who accept jobs can expect to receive compensation equal to their opportunity cost. Firms pay a wage which is just sufficient enough, to attract workers of the quality they desire and no higher [Krueger and Summers (1988)]. Overall, the markets do not follow the law of one price, contradicting the competitive framework. This is where the problem of wage differentials across different industries needs to be assessed, and has also been the focus of many studies over the years, mainly in the industrialised countries, e.g. USA, European Countries. However, the issue of wage differentials has been addressed by very few studies in the developing countries [Arbache (2001) and Erdil, et al. (2001)]. Wage differentials analysis in developing countries should also have equal importance as in the industrialised countries, in order to gauge the effect of the corporate culture and centralisation/decentralisation on the different industries and labour market of those developing countries.