Description

Informal workers constitute over 90% of the workforce in Ethiopia. Women take the larger share in informal economic activities. Informal economy workers suffer from decent work deficits including lack of access to contributory and non-contributory social security services. Informal operators are neither covered by social assistance schemes as they are assumed to have jobs/microbusiness nor by the contributory social insurance system due to low contributory capacity and/or regulatory barriers. Informal workers are thus classified as the ‘missing middle’. Extending social insurance mechanisms to informal economy workers with contributory capacity will broaden the tax base and free resources for tax-financed benefits. However, workers need to earn decent wages in order to be able to afford paying social insurance contributions. In Ethiopia, there is no legally set minimum wage except for public servants (the minimum wage for public servants is ETB 1500 Birr (USD 46) per month).Entry level workers in the Ethiopian garment manufacturing (mostly young women) are typically paid a base salary of only USD 26 per month which is three times lower than in countries such as Bangladesh and significantly below the poverty line.  Such a low wage level is below any kind of decent living, having negative implications on workers’ well-being and productivity. Income taxes collected from low wage bills have also a negative effect on public finance from the angle of domestic resource mobilization.  Although the Government of Ethiopia (GoE) has recently issued a new labour law (Proclamation 1156/2019) that provides for the establishment of a wage board to set the national minimum wage, a minimum wage is yet to be set. Supporting the process of setting the minimum wage is necessary as it is a necessary condition to extend social security coverage and contributory revenues in addition to enhancing productivity across the economy. The setting of a minimum wage that covers the basic minimum costs of living along with appropriate social security coverage improves labour productivity.