Wage in Ethiopia: Starting the Conversations

News | 25 September 2023

According to ILO’s labour force surveys, more than 40.5 million workers exist in Ethiopia. Ethiopia has century old membership of the ILO, ratifying numerous important conventions over the years. The Ethiopian Government has set a minimum salary for civil servants, however, there is no national minimum wage policy in the country so far. As a result, substantial number of work force are earning low wage that do not commensurate to their labour.

Minimum wage protects workers against unjustifiably low pay and helps to ensure a just and equitable economic growth in any society if properly regulated and managed. It is also believed to enhance productivity.

As part of the effort to foster the culture of tripartite social dialogue, we reached out to our constituents in Ethiopia to ask for their views on wage issues in the country. We spoke to Ato Kassahun Follo, the President of the Confederation of Ethiopian Trade Union (CETU), Mr Dawit Moges, Vice President of the Confederation of the Ethiopian Employers Association (CCEEA), Eng. Getahun, Confederation of Ethiopian Employers Federations (CEEF) and Dr. Tekalign Ayalew, Minister’s Advisor at the Ministry of Labour and Skills (MoLS).

Here is a recap of our discussion.

How would you define minimum wage?

Ato Kassahun Follo
: ‘Minimum wage means the minimum living wage that employers or business owners are required to pay by law, by wage board or wage council, and which cannot be reduced by collective agreement or employment contract. It means a protected minimum payment as part of a poverty alleviation policy.’

Ato Dawit Moges: “We accept the standard definition of the minimum wage as ‘the lowest remuneration employers can legally pay their employees- the price floor below which employees may not be employed or sell their labour.’

Eng. Getahun Hussien:
Minimum wages have been introduced to protect the workers against low pay, achieve various economic and social goals, particularly overcome poverty and ensure the satisfaction of the needs of all workers and their families. Therefore, minimum wage, in view of CEEF, is the minimum amount of remuneration that an employer is required to pay for wage earners for the work performed during a specified period (hourly, daily, or monthly), considering the employers’ capacity to pay.

Dr Tekalign Ayalew: “Proper legal definition shall be provided by wage board when it is established as per Procl. 1156/2019.”

Is there any legal basis to set minimum wage in Ethiopia?

Ato Kassahun Follo: “There is a legal basis in Ethiopia to set minimum wage, particularly the Labour Proclamation 1156/2019, which for the first time in Ethiopian history stipulates the establishment of a wages board that regulates minimum wage for workers. It is indicated that the wages board would be established as per regulations of the Council of Ministers. The proclamation was proclaimed with full active participation and consultation of workers and employers’ representatives and approved by the parliament. However, the wage board is not established yet and we are continuously demanding for realization of its establishment to be facilitated as soon as possible. We even had planned to use it as one of our slogans of rally for this cause on May Day but that didn’t happen due to security reasons.’

Ato Dawit Moges: Yes, there is, the Labour law No.1156/19

Eng. Getahun Hussien: “The revised labour Proclamation No. 1156/2019 Article 55(2) promulgates that a Wage Board which shall comprise representatives of the Government, Employers and Trade unions together with other stakeholders will set minimum wages and periodically revise based on studies that take into account the country’s economic development, Labour market and other considerations. Be that as it may, it becomes difficult for CEEF to confirm the existence of functional legislative mechanism to set minimum wages in Ethiopia.”

Dr Tekalign Ayalew: yes, according to labour proclamation 1156/2019 article 55/2 provides that a wage board will be established to set minimum wage.

Why do you think setting minimum wage is timely in Ethiopian Context?

Ato Kassahun Follo: ‘Setting minimum wage has become timelier than ever now. First and foremost, it has a legal basis. Second, workers are now finding it hard to survive with the rise of cost of living in the country. Many, low-income earners are even struggling to feed themselves and their families once a day. If they can’t feed themselves, they can’t also be productive in their job. So, it is timely and just with the rise of cost of living.’

Ato Dawit Moges: ‘We believe that there should be a lot to be done before implementing minimum wage. We need to conduct further study and create awareness among employers and stakeholders, including the financial policymakers, of the already high inflation rate the economy is experiencing. We need to work on productivity before applying the minimum wage policy.’

Eng. Getahun Hussien: There are arguments going around for setting minimum wages in Ethiopia. As it is well known the global economy including that of Ethiopia is experiencing instability and shock. Therefore, there is a need to ensure economic stability, productivity and competitiveness so as to set meaningful minimum wage.

Dr Tekalign Ayalew: ‘The Ministry is conducting a study to identify the challenges and opportunities of setting minimum wage in Ethiopia. The question will be answered when we finalise the study.’

What roles does minimum wages play in attracting foreign direct investment in Ethiopia?

Ato Kassahun Follo: ‘Setting minimum wage does not only benefit the worker but also benefits employers. It also benefits the government: particularly international investors come from countries with better wage structure, and they also sell their products to the international market which mostly demands this as requirement. Mostly, their markets are based in countries that have set minimum wage. Hence, setting minim wage in Ethiopia does not affect them but helps in boosting their productivity.

‘You cannot expect your worker to be productive if they are not well fed. The companies can only be profitable if the employee is as productive as expected. Furthermore, it also prevents workplace hazards and promotes occupational safety and health as well-paid workers are likely to fully concentrate on their work. If they are not well-paid, they will be carried away with worries about their livelihood leading to workplace hazards from machineries and chemicals.’

‘So, this not only lowers productivity but also incurs additional cost to the employers. Hence, setting minimum wage is crucial to attract FDI. Foreign investors are even demanding for it and asking us on when minimum wage is going to be set in Ethiopia.’

Ato Dawit Moges: ‘A minimum wage could attract FDI in such a way that some international firms want to have planned and well-administrated wage expenses that would help them know the exact labour cost through the years to come. Consequently, Foreign companies would be comfortable working in an environment with a well-managed wage administration rather than entering a market that does not have a minimum wage policy.’

Eng. Getahun Hussien: “There are arguments going on against and in-favour of setting minimum wages. On the one hand, if minimum wages are set too low, they will have negligible effect in protecting workers and their families; and on the other hand, if they are set too high, then they will have adverse effect on attracting foreign direct investment as it has a bearing on labour cost. Therefore, a balanced approach should be followed.”

Dr. Tekalign: 'This will be verified by the study.'

Some argue minimum wage will lead to job losses. What is your take as a representative of your organisation?

Ato Kassahun Follo: ‘When a company plans to start operation in Ethiopia, they look at the profitability of the sector. They come to get profits and to establish a sustainable business. They are not NGOs that come here for humanitarian assistance. So, they don’t hire more people just because there is no minimum wage. They know exactly their human resources needs so they don’t cut employees just because there is a minimum wage.’

‘In addition to that, labour cost is not the biggest cost for businesses. Labour cost is too low in this country even as compared to our neighbours like Kenya. Our neighbours have set minimum wage and it hasn’t affected their FDI. Similar companies in Kenya and Ethiopia hire similar number of workers, that means they don’t increase the number of employees in Ethiopia just because there is no minimum wage here. Hence, this argument is not based on scientific evidence and interpretations.’

Ato Dawit Moges: ‘Yes, we also argue that minimum wage reduces youth employment opportunities and creates unemployment. Workers miss out on the job training opportunities that would have been paid for reduced wages upfront but would have resulted in higher wages later. It will be worse in Ethiopia, where many unemployed people and no unemployment benefits exist.’

Eng. Getahun Hussien: ‘It has to be underscored that the government should ensure the full consultation and direct participation of social partners and other stakeholders that are directly and/or indirectly concerned in the setting and operation of minimum wages in the country.

Therefore, if minimum wages are set on the basis of evidence-based social dialogue and with the involvement of concerned bodies, CEEF is of the view that minim wage will have minimal or no bearing effects on job losses.”

Dr. Tekalign Ayalew: 'This will be verified by the study.'

In deciding on MW, what are the major factors that should be considered in Ethiopia?

Ato Kassahun: ‘Factors that should be considered are market and cost of living in different areas and cities. It should be based on a proper study that takes all parameters that affect wage and is supervised and approved by a legally established tripartite wage board.’

Ato Dawit Moges: I think cost of living, growth rate of the national economy, level of employment and unemployment, the economy of the country, ability to pay, demand and supply of labour, prevailing market rates of labour, productivity, government regulations and cost of training should all be considered.”

Eng. Getahun Hussien: “Setting and adjusting the level of minimum wage is the most complex and challenging exercise. That said, main factors that need to be taken into consideration in determining the level of minimum wages shall, include, but not limited to:-(a) the needs of workers and their families, taking into account the general level of wages in the country, the cost of living, social security benefits, and the relative living standards of other social groups; and (b) economic factors, including employers’ capacity to pay, levels of productivity and the desirability of attaining and maintaining a high level of employment. (C) Geographical locations may need to be considered also.”

What have you/your organization done so far to facilitate wage setting mechanism in Ethiopia?

Ato Kassahun Follo: ‘We have been working very hard with our stakeholders so that the issue of minimum wage is incorporated in the legal framework. It is now part of the labour proclamation, so it now has a legal framework in Ethiopia. That is a result of our efforts of course with other stakeholders.

We also aggressively involve in awareness raising and training of our members on what is minimum wage, how is it set and what is the ultimate purpose in the workers wage earning and protection and the role of trade union in its setting and implementation of it.

After the proclamation is adopted, we have continued our efforts to have the regulation approved by the council of ministers. In 2020, there was a tripartite committee that prepared drafts of a regulation for this with our efforts. On top of this, taking the issue being critical in the existing challenges Ethiopian workers are facing, we have taken our demands to the Prime Minister, Ministry Finance and we also planned to rally on May Day so that the Government considers and respond to our questions. But that didn’t happen because of security concerns. But lately, the Prime Minister have welcomed us at his office and assured us that our concerns are being considered and will be addressed in due course.

We have also raised the issue for the parliament’s Human Resource Standing committee and have discussed with them on this and tax related matters. They have promised to discuss with MoLS to find solutions and take the agenda forward.’

Ato Dawit Moges: ‘We have participated in the drafting of the labour law in the country, in studies conducted by stakeholders on minimum wages and in workshops and conferences conducted concerning minimum wages.’

Eng. Getahun Hussien: “The Confederation of Ethiopian Employers’ Federation is open and flexible to work closely and collaboratively with government and trade unions towards setting fair (minimum) wages in Ethiopia. In view of this, CEEF has actively involved in the revision of labour law that has become a legal basis for setting minimum wages in Ethiopia; and participated in minimum wage study at national level that was intended to be used as a basis for further dialogue and engagement amongst the stakeholders, going forward on the issue of minimum wages; among others.”

Dr Tekalign Ayalew: ‘The ministry is holding continuous dialogue with employers and other stakeholders to provide allowances and supplementary benefits to workers apart from setting wages. The Ministry is also conducting a study to identify better mechanisms, the challenges, and opportunities of setting minimum wage in Ethiopia.’

What should be done now?

Ato Kassahun Follo: “The Minimum Wage board should be established as soon as possible and a study on how to set Minimum Wage should be conducted. Some are saying that the Proclamation should be revised and a study to determine whether setting Minimum Wage is necessary or should be done. But that’s not right. We have now closed the agenda on the importance of setting minimum wage. We all have agreed that it is a necessity to set minimum wage and studies should be conducted on how to put that in place, reckons. MoLS should establish the board that follows up the study. It is not their mandate to conduct a study now. Workers and Employers have already understood that setting minimum wage is important and timely for the mutual benefit of both parties and the government as well.”

Ato Dawit Moges: “Going forward, social partners should come together to discuss and assess wage structures sector by sector and by geographical location to come up with an agreed proposal. Second, there should be an awareness creation among all stakeholders on the pros and cons of setting minimum wage. And finally, experiences of other countries should also be evaluated and considered to draw lesson from those countries who are managing it well.”

Dr Tekalign Ayalew: The government believes that study underway by the Ministry should be finalised first to move on to the next steps.