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Wage Inequality in Africa pp 33–53Cite as

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The Urban Wage Premium in Africa

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Part of the book series: Global Perspectives on Wealth and Distribution ((GPWD))

Abstract

This chapter examines the size and sources of the urban wage premium in three African countries—Nigeria, Tanzania, and Uganda—using panel data on workers for the period 2009–2013. We ask three basic questions. First, is there any evidence that an urban wage premium exists in Africa? Second, what role, if any, does spatial sorting play in explaining this wage premium? And third, which demographic groups benefit the most from agglomeration effects? Our findings present new evidence on the role of cities in Africa. Specifically, we find strong evidence that an urban wage premium exists and is not explained solely by the spatial sorting of more skilled workers into African cities. However, there is considerable heterogeneity in who benefits from agglomeration effects. We find evidence that the urban wage premium is largest for workers in the primate city of each country and, in some cases, non-existent for workers in secondary cities. In addition, the urban wage premium is only found to be significant for male workers in all three countries studied.

This chapter is a part of a Global Research Program on Spatial Development of Cities, funded by the Multi Donor Trust Fund on Sustainable Urbanization of the World Bank and supported by the UK Department for International Development.

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Notes

  1. 1.

    Urbanization can have a positive effect on rural wages as well. There may be backward linkages which increase the demand for agricultural products (Cali and Menon 2009) and/or rural workers may end up with greater land per person.

  2. 2.

    More recent studies include De La Rocha and Puga (2015); D’Costa and Overman (2014); Mion and Naticchioni (2009); Combes et al. (2008); Di Addario and Patacchini (2008); and Yankow (2006).

  3. 3.

    There is an older, well-established literature which estimates the difference in per capita consumption and poverty rates between urban and rural areas. These studies find that urban areas have higher per capita consumption and a lower incidence of poverty than rural areas. Examples include Squire (1981) and World Development Report (2010).

  4. 4.

    For example, Glaeser and Maré (2001) estimate an urban wage premium of between 0.071 (log points) and 0.441 (log points) for US workers.

  5. 5.

    To answer this question requires data on the physical output of workers. When using wages (or revenue-based measures of firm productivity) to measure agglomeration effects, it is impossible to determine whether higher wages (or establishment-level TFP) reflect higher physical productivity or simply higher prices.

  6. 6.

    We did estimate the urban wage premium using a fixed effects estimator but found inconsistent results compared to the other estimation techniques we used to identify the importance of sorting in explaining the wage premium. We are happy to provide these results on request.

  7. 7.

    While Dar es Salaam is the primate city of Tanzania, it is not its political capital. In 1973 the government announced that it was moving the capital to Dodoma. However, the transfer of political administration has been incomplete. A large number of government departments remain in Dar es Salaam and, of course, it remains the business capital and largest city in the country.

  8. 8.

    The percentage wage gap is calculated as \({e^\gamma }\) – 1.

  9. 9.

    There is evidence from Africa that, on average, workers are paid the value of their marginal product. See Jones (2001). This study, however, covers only a few industries within the manufacturing sector in Ghana.

  10. 10.

    Real wages are calculated as nominal wages deflated by the Fischer price index for food. To calculate the Fischer price indices, we used price data collected as part of the Living Standards Measurement Survey (LSMS) community surveys in both Tanzania and Uganda. We are grateful to the Uganda Bureau of Statistics (UBOS) for releasing the Uganda price data to us.

  11. 11.

    Glaeser and Maré (2001, p. 330) find somewhat smaller size effects for workers’ unobserved skills. In the US labor market, the dense metropolitan area wage effect is 5.2% smaller when they control for these variables.

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Author information

Authors and Affiliations

  1. Oxford University, Oxford, UK

    Patricia Jones

  2. World Bank, Washington D.C., USA

    Olivia D’Aoust

  3. Oxford University, Oxford, UK

    Louise Bernard

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  1. Patricia Jones
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  2. Olivia D’Aoust
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Editor information

Editors and Affiliations

  1. Vassar College , Poughkeepsie, New York, USA

    Shirley Johnson-Lans

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Jones, P., D’Aoust, O., Bernard, L. (2017). The Urban Wage Premium in Africa. In: Johnson-Lans, S. (eds) Wage Inequality in Africa. Global Perspectives on Wealth and Distribution. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-51565-6_3

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  • DOI: https://doi.org/10.1007/978-3-319-51565-6_3

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