Wage Setting Behaviour of Firms in Industrial Estates of Khyber Pakhtunkhwa, Pakistan
DOI:
https://doi.org/10.47067/ramss.v3i3.75Keywords:
Wage Setting Behaviour, Wage Rigidity, Time-Dependent and State-DependentAbstract
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.
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