Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/52896 
Year of Publication: 
2003
Series/Report no.: 
WIDER Discussion Paper No. 2003/66
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
Abstract: 
This paper uses data on individual earnings in manufacturing industry for five African countries in the early 1990s to test whether firms located in the capital city pay higher wages than firms located elsewhere, and whether such benefits accrue to all or only certain types of workers. Earnings equations are estimated that take into account worker characteristics (education and tenure) and relevant firm characteristics (notably size and whether foreign owned). Any location effect identified is therefore additional to appropriate control variables. There are two main findings. First, we find evidence of a ‘pure capital city premium’ equivalent to between 12 per cent and 28 per cent of nominal average earnings in the five countries. In some countries this location premium exceeds plausible consumer price differentials, between the capital and other urban areas. This does suggest that real (purchasing power) manufacturing wages are higher in the capital city (although this real premium is no more than ten per cent). Second, we find that skilled workers earn a higher wage premium in the capital city than those less skilled.
Subjects: 
wage inequality
earnings functions
location
Africa
JEL: 
F23
J31
Document Type: 
Working Paper

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