Urban Wage Behaviour and Food Price Inflation in Ethiopia
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Theoretically, increases in food prices could benefit the poor by increasing the demand for unskilled labour, and hence their wages. This paper tests this hypothesis in urban Ethiopia. We exploit a unique panel of monthly price and wage data from 111 urban markets to first construct welfare-relevant measures of real wages, before employing various panel estimators to formally test wage-food price integration. We find moderate rates of long-run adjustment to increases in food prices, but that adjustment is very slow. This implies highly adverse short-run welfare impacts of higher food prices on the urban poor.
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