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BusinessStudy to weigh pros and cons of minimum wage as Ethiopia hesitates

Study to weigh pros and cons of minimum wage as Ethiopia hesitates

Following backlash from the Office of the Prime Minister, the Ministry of Labor and Skills has launched a national assessment before deciding on a minimum wage. The assessment will take three to four months to complete.

While the Labor Proclamation mandated setting a minimum wage, the government has hesitated due to the country’s economic crisis.

The 2019 Labor Proclamation stated that a Wage Board shall be established through the Council of Ministers regulation. The Wage Board would then periodically revise the minimum wage.  

But four years have passed before the government established the Wage Board. “We tried to establish the Board. We prepared a draft regulation and sent the draft to the PM’s office but they sent it back to us. So we are studying the issue again,” says Tekalign Ayalew, director of labor affairs at the Ministry of Labor and Skills.

The government worries that setting a minimum wage amidst the economic crisis could backfire and exacerbate the situation, according to Tekalign. Its biggest concern is that a minimum wage would reduce job creation and scare away investors.  

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“What we need first is to introduce a living wage. According to some studies and experts, the minimum amount required to live in Addis Ababa is currently 40,000 birr per month. So which employer will pay that? This needs serious caution,” said Tekalign, frustrated.

The national assessment – conducted by resources and experts allocated from the Ministry of Labor and Skills – will determine the advantages and disadvantages of setting a minimum wage in Ethiopia.      

The study will establish the political, economic and social advantages and disadvantages of a minimum wage. It is expected to determine the proper institutional approach through which a minimum wage can be implemented. It can be a board, as mentioned in the proclamation, or another institutional arrangement tailored to different sectors.

The study will also recommend how a minimum wage can address the existing crisis.

“So it is a study to find out how Ethiopia can introduce a minimum wage without exacerbating the current crisis,” Tekalign added. “It complicates job creation, investment and inflation. The economy is currently in crisis and cannot bear a minimum wage. Introducing a minimum wage at this time of economic crisis would exacerbate the situation.”

The study can recommend full implementation of a minimum wage or phased implementation in selected sectors. It can also recommend establishing a wage board, team of experts or other body for implementing minimum wage in Ethiopia.  

Workers in low-income jobs like industrial parks, factories, construction and daily labor have been severely impacted by the lack of a minimum wage. The Confederation of Ethiopian Trade Unions (CETU) is also concerned, writing a letter to the PM last month. But the government denied CETU permission for a public demonstration on May 8 this year. 

“We’re not saying a minimum wage is unnecessary. But we’re saying its difficult now during this crisis,” Tekalign said. “So we need to introduce it only for severely impacted sectors in phases. We know employees are being oppressed and inflation is a challenge. Setting a minimum wage is also good in line with ILO requirements. It will avoid cheap labor in Ethiopia. But it will reduce job creation and investment.”

The study will determine how to balance the advantages and disadvantages, according to Tekalign.

He says the 2019 proclamation was passed without considering these issues and needs revision.

“So we are planning to review the proclamation. Ethiopia has undergone war, climate crisis, pandemic and compounded crisis since the proclamation four years ago. So the proclamation needs review. It was ratified without being well thought out because Ethiopia had a transitional government at the time,” he said.

The informal economy, inflation, unemployment and macroeconomic issues, Tekalign says, affect the minimum wage. “Otherwise, minimum wage will be fruitless. There is huge international pressure on Ethiopia to set a minimum wage.”  

However, since amending the proclamation will take time, there is a possibility that a minimum wage will be introduced ahead of the revision.

“What we expect is, immediately after the study is finalized in the next few months, the wage board will be established if recommended by the study. The board will then study the markets and introduce minimum wage thresholds for selected sectors,” Tekalign said. “Another modality might also be considered. Time is against us. If we had more time and passed the current crisis, it would be simple to introduce the minimum wage.”  

Tekalign says the government could not introduce a minimum wage so far because several contexts emerged, affecting the government. “After the study is finalized, we expect something within four months.”

In the meantime, the Ministry is also communicating with the Ministry of Industry to empower manufacturing employees’ bargaining power. 

“We are communicating with the Ministry of Industry to enable workers in manufacturing industries to renegotiate with employers and access additional subsidy packages,” Tekalign said. For him, it is about leveraging the bargaining power of manufacturing employees.

“Public servants are not under our mandate. Employees must form associations and engage in collective bargaining. Then they will negotiate with investors and industrial parks,” Tekalign said.

By Helen Tesfaye & Ashenafi Endale

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