# Introduction

Conventional stabilisation and adjustment policies for developing countries typically presuppose the existence of labour market flexibility. Variation in the nominal exchange rate is usually given a central place in such reforms because it can change the structure of relative prices in virtuous ways. In the presence of labour market rigidity, however, such price changes will not be achieved. If, for example, real wages were inflexible downwards, reduction of the nominal exchange rate would have scarcely any real effects: except during a short transitional period, relative prices would remain unchanged and resource reallocation would not occur.

Inflexibility of the labour market can also explain a lack of output response even where relative prices have been successfully altered. Low supply elasticities often arise from a lack of available physical inputs - raw - materials, equipment, intermediate goods but they can also be caused by shortages of or qualitative deficiencies in human resources, by ignorance of technological possibilities or of market opportunities. These facts are demonstrated in this paper, which examines the relationship between successive attempts to stabilise the economy of Zambia and trends in its domestic labour market. It is shown that both skill shortages and real wage rigidity exacerbated Zambia's economic decline over more than a decade, notwithstanding successive nominal devaluations of the Kwacha. Furthermore it is shown that the early demise, in 1987, of the adjustment package imposed by the IMP resulted from an unrealistic (or unconsidered) assumption that the majority of middle and lower income urban Zambians would tolerate pauperisation at the hands of a rapidly depreciating nominal exchange rate, notwithstanding the lessons and history of the previous decade. It follows that serious analysis of the labour market is a necessary input to (and the major past omission from) the design of stabilisation and adjustment programmes if they are to stand much chance of either economic or political success.

The analysis begins with a short account of Zambia's macroeconomic record since 1970. This is followed by an assessment of some of the main influences on and characteristics of labour supply and labour demand over the period. The central section of the paper identifies the major labour market rigidities in Zambia and their contribution to the country's economic decline. The final section examines the impact of the 1985 IMF stabilisation package on the labour market, and the reasons for its ultimate rejection. Conclusions - are drawn for future policy in Zambia, and for other countries contemplating or being urged to introduce - economic reforms.

# Economic Change in Zambia 1970-85

In recent times there have been few countries in the world which have had a more catastrophic economic record than Zambia. Over the two - decades ei,ding in 1985, only six countries from amongst the 120 or so for which data are available (World Bank 1987: Table 1) - had a worse record of income loss. Furthermore in four of these six cases (Niger, C-had, Uganda and F,icaragua) the occurrence of natural or political disasters in the form of lrought and/or war largely explain their demise. 'Easy' explanations are