According to the International Labor Office, around 90 percent of countries in the world have legislations that proclaim a minimum wage payment.
Ethiopia is part of the remaining 10 percent of nations that do not have such laws. In the current economic climate of increasing foreign and domestic investments, perhaps it is time to set a price floor on wages.
The World Bank explains, “The [Ethiopian] economy has experienced strong and broad based growth over the past decade, averaging 10.9% per year in 2005-2013.” Within that time, Ethiopia has seen the birth of a number of businesses in the hospitality and manufacturing sectors; foreign investment from companies from around the world, notably Chinese shoe makers Huajian and Swedish clothing company H&M; the construction of a railroad system in Addis Ababa; and the construction of the Addis-Adama Expressway.
In the simplest of terms, a legislated minimum wage is a federal price floor, the lowest limit for the wage of workers based on different skill levels. Such a level is supposed to secure the lowest bracket at an ethical point and insure that all workers attain a livable wage for their work, but its implementation has been a controversial issue.
Those who stood against the idea claim that it will do more harm than good because it will hurt small businesses, shrink profit margins, cause employers to cut down on staff, and increase the cost of consumer goods. In other words, legislating minimum wages will create a greater expenditure for businesses –since they will have to pay employees higher wages to meet the standard, and that will hurt small businesses.
This will then cause the businesses to either lose potential profit which they have to allocate to paying the wages, or lay off workers to maintain their profit margins. Either way, the end consumer, who is buying the final product, will be hurt because the business will likely raise the price of the final product, passing on the increased cost to consumers in order to maintain their profit margins. This is what economists call cost-push inflation and those parties who are against setting a minimum wage often cite this phenomenon to support their claim.
Proponents of a minimum wage legislation claim it is necessary to protect workers and ensure they receive a livable wage. From this angle, a legislated minimum wage is seen as necessary and positive since it is assumed that businesses value maximizing profit over the welfare and quality of life of their workers, in which case the government needs to step in to insure all workers receive a livable wage.
Furthermore, they argue that a business whose profit margin would shrink because of a minimum wage legislation being set should face the consequences because it is presumably making unfair profits, and it hinges on consumers’ will to take on the extra costs for the sake of giving workers a wage they can live on.
Nevertheless, it is important to note that not all businesses value profit over employees’ living conditions and some do maintain a fair wage standard in the absence of mandatory laws. For instance, Celal Sarikamis who is Executive Director of Tuskon, a Confederation of Businessmen and Industrialists of Turkey, says, “The companies within our confederation pay above standard wages in order not loss their labor force to other companies”.
Fitsum Gebremichael, expert at Ministry of Labor and Social Affairs, also points out that “it’s important to ask if minimum wages would be applicable to a specific business.” The expert says at the current stage of Ethiopia’s economy, we have to reach a point where we can implement legislated higher wages without disturbing the current rate of economic activity.
Extensive studies of economic and social conditions must be done to determine a minimum numerical value a person should be paid for their work that would be considered a “livable wage.” And such a study is not conducted in Ethiopia to the present day. The Ethiopian Worker’s Confederation has been attempting to determine the economic and social conditions of workers through fragmented surveys but it has not come up with a holistic official proposal yet. The last proposal was made 15 years ago but Kassahun Folle, President of the Confederation of Ethiopian Trade Unions (CETU), adamantly said, “that proposal cannot be applied to Ethiopia’s current situation given the immense change the country has gone through since then.”
He told Capital that CETU will support the implementation of a minimum wage when conclusive studies are made and the time is right.
In the absence of minimum wage legislation, salaries are determined on an individual basis through agreements reached by the employee and employer. Fitsum told Capital, “When a person is being hired at a cafe, for instance, the government has absolutely no involvement, and the salary the employer is willing to pay is usually determined by the level of output and profit margins of the business and the two parties negotiate and reach an agreement.”
But sometimes, the price a company or business is capable of paying and the price it is willing to pay are different, with the later usually being lower. In theory, the whole point of implementing a legislated minimum wage is to keep the employer in check and to protect employee’s welfare, but pragmatically it is a much more complicated process.
With the current rather high demand for labor from both local and foreign companies, the bar needs to be set at a reasonable point not to deter companies from hiring or even working in Ethiopia, and not to let workers squeeze themselves live on meager incomes. Finding this balance will require a close analysis of economic and social conditions to derive sound numeral value, and a commitment to adjust that value according to changes in the standard of living.
Most experts agree that we are still in the early stages of economic development, but we have to create a balance between workers welfare and economic profit now more than ever before, so as to not drive away potential profit and investment by making labor expensive, nor create an economy that is dependent on cheap labor. Because an economy that is dependent on cheap labor inherently perpetuates poverty in the working class, and feeds the cycle of poverty in such a way that investment alone cannot make up.