Minimum Wage Promises Remain Unfulfilled as Employees Toil for Less

May 3 , 2025
By Ahmed T. Abdulkadir

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Six years after the labour law called for a Wage Board and nearly a century after the country first toyed with wage setting, the floor that would protect millions of low-income workers is still missing.

The Confederation of Ethiopian Trade Unions (CETU) has been petitioning for a national minimum wage longer than most of the sewing machine operators in Hawassa Industrial Park have been alive. But this year has arrived with nothing more than fresh promises. Pay slips, not policy, continue to tell workers what their labour is worth.

A young woman bent over a single-needle machine in Hawassa’s neatly ordered sheds can expect about 1,500Br a month, an earning neither the retail price of the shirt she stitches nor the profit margin from the brand that will eventually be on sale abroad. Wages were never meant to track productivity. Their virtue is that they arrive at month’s end, whether or not a firm finds buyers. As labour economists like to say, they represent what employers are willing to pay to keep a worker alive and turn up for the next shift.

That modest calculation still seems to baffle the authorities tasked with setting a mandatory minimum wage.

What does it take to keep an employee functional?

The answer is both technical and profoundly political.

Food is indispensable, but should the calculation assume a balanced diet or settle for boiled potatoes and little else? Shelter is essential, yet does it require indoor plumbing or merely four tin walls that do not leak too much? Even basic hygiene can be disputed. If soap and toothpaste push the wage above an employer’s comfort zone, are clean fingernails a luxury?

Comparisons help illuminate the choices. American minimum wage formulas count meat consumption, which averages more than 100Kg a year. In Ethiopia, where beef is reserved for holidays, a wage floor that assumes regular animal protein would look extravagant. The point, however, is not nutritional science; it is public priority. Minimum wage debates are shorthand for what a society believes workers deserve as a matter of decency.

Other low-income countries have answered the riddle in ways that keep investors interested.

Tanzania operates sector-based wage schedules; Kenya pegs a national floor at roughly 117.65 dollars a month; and Uganda enforces a wage of 35 collars. None of those economies has collapsed under the strain. Vietnam goes further, using a dual-tier system in which a national council sets broad parameters while a technical board makes industry-specific adjustments, an approach the International Labour Organisation (ILO) has offered to replicate in Ethiopia with financial and advisory help.

Why is there a stalemate if technical solutions are available?

Roughly 70pc of the population is under 30, and youth unemployment nears 20pc. With a million hands competing for a thousand jobs, the price of labour naturally falls. Ideally, employers do not conspire to pay less; they respond to the surplus in front of them. Cheap labour is a competitive edge, especially in export manufacturing.

Yet, that edge is fraying. Attrition rates in industrial parks are ruinous, as weary employees quit en masse rather than endure wages that barely cover daily transport, let alone rent or protein. Some managers have begun to see a statutory floor as a stabiliser. MIDROC Investment Group quietly set its own company minimum at 5,000 Br, betting that higher retention will outweigh the added cost.

Foreign buyers, too, are recalibrating. The European Union’s new Corporate Sustainability Due Diligence Directive will soon require brands to prove their supply chains are free of abuse, or at least show credible effort. Lacking a national wage standard could jeopardise Ethiopian exports to European closets more than any tariff.

Opponents of a legal floor warn of inflation, shuttered small businesses and an exodus of investors. Experience suggests otherwise. Kenya, Tanzania and Uganda absorbed their wage laws without triggering economic calamities. Not even a public sector pay revision last year that lifted the lowest salaries by as much as 300pc did not rattle macroeconomic indicators. If anything, the move was an implicit admission that prevailing wages are too low.

A minimum wage tests the balance of influence among employees, employers and the state. Employers, facing narrow margins and global competition, prefer wages to be as low as the market allows unless forced higher by regulation or collective bargaining. Individual workers possess little leverage when jobs are scarce. Collectively, however, they can bargain; and it is through genuine tripartite dialogue — unions, employers and government at the same table — that viable wage policy usually emerges.

Ethiopia has the statutory space for such talks. A law passed in 2019 spells it out. However, laws cannot replace the will to convene the Board and let negotiations run their course.

The economic case for a floor is gaining ground as businesses recognise that rock-bottom pay can be self-defeating. Training replacements for employees who leave after three months costs time and money, eroding whatever savings ultralow wages offer. Stability, a watchword for employers, increasingly includes decent pay. The ILO argues that a clear, enforceable minimum would raise Ethiopia’s profile among buyers seeking ethical and predictable suppliers.

Employees continue to compute their survival on the back of an envelope. Rent claims a slice, transport another, and food the rest. There is little left for soap, medicine, or school fees. The choice facing policymakers is whether a country that aspires to middle-income status can afford to ignore the wage floor that almost every peer economy has found indispensable. The data exist, the precedents are clear, and the legislative mandate is already on the books. What remains is the decision to act.

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PUBLISHED ON May 03,2025 [ VOL 26 , NO 1305]

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