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A lobby group representing the country’s labor unions has hit another obstacle in its push for the introduction of a minimum wage as a new government study indicates federal authorities are hesitant the change would trigger mass unemployment, social crisis.
A senior government official close to the matter told The Reporter that a recent feasibility study claims the disadvantages of introducing a minimum wage in Ethiopia would trump the benefits.
“Most of the employed workforce earns small salaries. If a minimum wage is introduced, all these people would become jobless. The study found that introducing a minimum wage would have the macroeconomic repercussion of triggering unemployment,” said the official.
The International Labor Organization (ILO) estimates Ethiopia’s unemployment rate sits near 3.5 percent.
During a parliamentary session this week, MPs asked officials from the Ministry of Labor and Skills why the federal government has yet to introduce a minimum wage requirement.
“Other countries are currently talking about ‘living wages’ and Ethiopia has not even introduced a minimum wage. We hear the government is hesitant to introduce minimum wage because the government is protecting investors, especially FDI. Would a minimum wage really result in FDI shying away from Ethiopia or push existing investors out?” asked Negeri Lencho (PhD), chair of the parliamentary committee for Human Resource and Technology Affairs.
Muferiat Kamil, Labor and Skills minister, said fears that a minimum wage requirement could impact FDI are unfounded.
“Introducing a minimum wage cannot impact FDI because foreign investor interest in Ethiopia is growing. But we first have to design policies on how to manage the repercussions that might follow the introduction of a minimum wage. The government is working on the minimum wage issue. But we have to be ready for all the implications before it is introduced,” said Muferiat.
The Minister also called on workers to improve productivity.
Kassahun Folo is the secretary-general of the Confederation of Ethiopian Trade Unions. He criticized the government for conducting the feasibility study for minimum wage on its own and says the lobby group he leads was unaware the study even existed.
“Such a study can be conducted only by the Wage Board, which has not been established five and a half years after the proclamation was ratified. Nobody contacted us; we did not know the study was underway,” he said.
The labor proclamation introduced in 2019 calls for the establishment of a Wage Board to determine a minimum wage. The government recently established a wage board for the civil service, but the private sector has yet to see one.
“Why would the government conduct a study on its own and say a minimum wage is bad for employees? The Board must be established first, then it can conduct the study. The decision whether a minimum wage is good or bad will be determined by representatives from the employers’ side, employees, and the government. But now the government seems to be deciding alone. This is not acceptable,” argued Kassahun.
CETU has repeatedly demanded the formation of the Wage Board.
“Last year, we met the PM and discussed the importance of a minimum wage. The PM assigned the respective ministers to make a decision. We’ve written several letters to these ministries since but we haven’t had any responses,” said Kassahun.
He observes workers in Ethiopia are dealing with deteriorating living conditions.
“A significant number of workers are earning between 800 birr and 1,200 birr monthly. With this money, can they really live? It cannot cover rent, food, transport or anything. People are working in the office or at projects all day, and scrambling to get leftover food from hotels to survive. A minimum wage is not optional. We cannot stay silent while most employees are suffering with very meager salaries,” said Kassahun.
He indicated that labor unions and employers are beginning to take their own steps to deal with the lack of a minimum wage requirement. Investor associations at industrial parks are keen to see the introduction of a minimum wage, while conglomerates such as MIDROC Investment Group, the largest private employer in the country, has set a 5,000 birr monthly minimum wage.
“This employer did not go bankrupt because it introduced a minimum wage. Instead, it is benefiting from the employees’ commitment and productivity. Unlike what the government says, minimum wage is beneficial for employers too,” said Kassahun.
In the IMF program report on Ethiopia released last week, Finance Minister Ahmed Shide and central bank Governor Mamo Mihretu provided details about the government’s efforts to raise pay for civil servants.
“We have announced an increase in salaries for public sector employees, prioritizing low wage earners that fell significantly below the poverty line. The wage increase will benefit 2.3 million federal and regional civil service workers, regional and federal police, and defense forces, at a gross cost of 91 billion birr (0.6 percent of GDP), of which about 1/3 will be offset by higher income tax receipts, in line with the spending envelope under the program,” reads their letter to IMF Director Kristalina Georgieva.
The officials say the salary increase is hoped to restore wage erosion and protect low-wage civil servants from the rise in the cost of living.
“The lowest-paid employees, who were earning salaries well below the poverty line, will receive a 300 percent increase, while increases for the highest earners will be capped at below 5 percent,” reads the letter.
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