Ethiopia - Wages and Prices

Wages and prices

Prior to the revolution, the Central Personnel Agency formulated and regulated wage policies. At the time of the military takeover, there was no minimum wage law; wages and salaries depended much on demand. There was, however, some legislation that defined pay scales. For instance, Notice 49 of l972 defined pay scales and details regarding incremental steps for civil servants. Similarly, the Ethiopian Workers Commission had developed pay-scale guidelines based on skill, experience, and employment. In l974 CELU asked for a 3 birr daily minimum wage, which the imperial government eventually granted.

After the revolution, the government's policy was to control wage growth to reduce pay scales. For parastatal and public enterprise workers earning 650 birr or less per month (real income, i.e., income adjusted for inflation) and civil servants earning 600 birr or less per month, the government allowed incremental pay increases. But for those above these cutoff points, there was a general salary freeze. However, promotions sometimes provided a worker a raise over the cutoff levels.

Given inflation, the salary freeze affected the real income of many workers. For instance, the starting salary of a science graduate in l975 was 600 birr per month. In l984 the real monthly income of a science graduate had dropped to 239 birr. Similarly, the highest civil servant's maximum salary in l975 was l,440 birr per month; the real monthly income of the same civil servant in l984 was 573 birr.

Data on real wages of manufacturing workers and the behavior of price indexes provide further evidence of worsening living standards after the revolution. In l985/86 the average real monthly income of an industrial worker was 65.6 percent of the l974/75 level. The general trend shows that real income fell as consumer prices continued to increase. The retail price index for Addis Ababa rose from 375.2 in l980/8l (l963=100) to 480.0 in l987/88. This rise in the retail price index included increases in the cost of food (27 percent), household items (38 percent), and transportation (l7 percent).

Price increases mainly affected urban wage earners on fixed incomes, as purchases of necessities used larger portions of their pay. The government's wage freeze and the controls it placed on job transfers and changes made it difficult for most urban wage earners to improve their living standards. The freeze on wages and job changes also reduced productivity.

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