www.abyssinialaw.

com

The Minimum Wage System in Ethiopia: Comparative

Analysis with other Nations.
Elias Kasa**

Abstract
A minimum wage is the lowest wage that employers may legally pay to workers. The purpose of
minimum wages is to protect workers against unduly low pay and they are essentially labour
market interventions used by governments either as instruments of political macroeconomics or
as social tools. Governments introducing minimum wage policy and legislations basically aim to
protect low-income workers through the introduction of minimum wages based on country
specific factors. In case of Ethiopia the new labour proclamation which is entered into force in
5th September, 2019 for the first time provide establishment of minimum wage board that will
periodically revise minimum wages based on different factors. Since the new minimum wage
board in Ethiopia is a new conception it is not perfect in addressing all issues and problems that
exist in the implementation of the purpose intended by the government. So this article has
employed different sources and explores the minimum wage system in Ethiopia special focusing
on new labour proclamations by consulting other countries better experience in tackling those
unseen problem and for having strong minimum wage system in the country.

Keywords: Minimum wage system, labour law, minimum wage board

** LLB(Jimma University), LLM(Oromia State University) Judge at Oromia High Court(Arsi

Zone) he can be reached at email [email protected]
 www.abyssinialaw.com

1. INTRODUCTION
The Wage Boards help to resolve the disputes in a democratic manner by bringing the parties
together, without compulsion on either side. The first wage board was set up in 1957 in the
Cotton Textile Industry.1 Thereafter number of wage boards for different industries have been
set-up. These boards are appointed by the Government purely on an adhoc basis on the demand
of the Trade Unions and employers. Although at the time when the International Labour
Organization was established, minimum wages had only been set in a few countries, including
Australia, France, New Zealand, Norway and the United Kingdom, and only covered certain
categories of Workers.2
Wage boards would help increase productivity in several ways. 3 First, higher wages help
reduce turnover and encourage innovation. Second, similar pay for similar work enables a more
efficient allocation of resources, which speeds up the movement of labor and capital from low- to
high-productivity activities. Third, by elevating conflict about pay scales to outside the firm,
wage boards can enable greater collaboration within the workplace. Fourth, wage boards
promote worker training by minimizing the employees‟ financial incentives to leave firms once
they are trained. fifth, by making the rationale for pay increases clearer and more transparent.

Ethiopia is one of the developing countries with low per capita income, which is $783.4 The
wage being paid at manufacturing sectors might be one of the reasons for the low per capita
income and the creation of the working poor. Although some public sector institutions and
enterprises have set their own minimum wages, there is no consistent minimum wage system in
Ethiopia. In response to this situation, a labor proclamation which is drafted by the MOLSA to
establish a Commission to set a minimum wage is entered into force in 5th September, 2019. The
proclamation will not set a minimum wage rather establish a commission that set a base wage
across time depending on the economy, cost of living and other factors in order to avoid the
hassle of revising the proclamation repeatedly. The new labour proclamation is believed to solve
recurrent issues demanding for salary increment, and other work related issues raised by workers
particularly in manufacturing sector.. Since the new minimum wage board is a base for
1
https://www.businessmanagementideas.com/wage/wage-board/20848 accessed june 2,2020
2
A. Marinakis: The role of the ILO in the development of minimum wages (Geneva, ILO, 2008), p. 3.
3
Justin Wolfers and Jan Zilinsky, “Higher Wages for Low-Income Workers Lead to Higher
Productivity”(Washington:Peterson Institute for International Economics, 2015), available at
http://blogs.piie.com/realtime/?p=4700;accessed accessed may 4,2020
4
World Bank, <https://www.worldbank.org/en/country/ethiopia/overview> accessed 4 May 2020
 www.abyssinialaw.com

establishment of minimum wage system in Ethiopia. So under this article enacting laws for
having a minimum wage system is not a goal by itself for expected result. So we need to explore
the minimum wage system in Ethiopia special focusing on new labour proclamations.
With the view to address the above raised issue the article is organized into four sections.
Following this introductory section, section two deals with the general overview minimum wage
system, along with genesis of minimum wage system the third section analysis regarding the
minimum wage system of Ethiopian new labour proclamation focusing on the experience of
selected national laws of some Countries indicating lessons that can be learned by Ethiopia from
experience of these selected countries. Finally the articles winds up by addressing conclusion and
recommendations.

2. BRIEF OVERVIEW OF MINIMUM WAGE SYSTEM

A minimum wage is the lowest wage that employers may legally pay to workers. 5 While
precursors go back to the Hammurabi Code, 2000 B.C., the practice of minimum wage
regulation is generally considered to have first developed in New Zealand and Australia around
the turn of the century. 6Initially it was used in these two countries as part of the procedure for
the prevention and settlement of industrial disputes. Under the New Zealand Industrial
Conciliation and Arbitration Act of 1894, the Court of Arbitration was empowered to settle
industrial disputes by issuing awards fixing minimum wages that could be made binding for all
workers in the industry in the district where the dispute had taken place. 7 Other countries soon
followed suit in providing protection against unduly low wages, with the difference, however,
that the protection was confined in most cases to particular categories of workers considered to
be especially vulnerable.
The first minimum wage laws introduced in the United States were different in that the
vulnerable categories of workers singled out for protection were females and minors. In 1912
and 1913 nine states adopted such minimum wage laws, and by the end of 1923 the number had
grown to 17. 8 Legislation introducing similar minimum wage regulation systems with a broad

5
https://en.wikipedia.org/wiki/Minimum_wage accessed 19 june 2020
6
https://www.ilo.org/public/libdoc/ilo/1981/81B09_266_engl_1993.pdf accessed 18 june 2020
7
Gerald Starr, Minimum Wage Fixing: An International Review of Practices and Problems (Geneva: International
Labour Office, 1981; second printing with corrections, 1993). p. 1.
8
Supra Note 7 p-3
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purpose and scope was introduced in a few other Latin American countries around the same time
(Costa Rica and Cuba (1934) and Brazil (1938)).9
Regarding Africa, legislation on minimum wages was adopted quite early in many parts of
Africa, it was not until the 1940s and 1950s that effective laws and a number of minimum wage
10
fixing decrees were implemented on a significant scale. The systems of minimum wage
regulation introduced at this time were heavily influenced by the colonial ties of most of the
countries of the continent. In most of the British colonies minimum wage regulation, although
authorized by legislation, was not extensively or regularly practiced. In the other African
countries subject to a quite distinctive external influence, minimum wage regulation also
developed in the post-Second World War period. Thus in Egypt and Libya, although there is no
regularly operating minimum wage fixing machinery, decrees or laws fixing minimum wages
have been issued from time to time.11 In the Sudan general minimum wages were declared in
1974 for the first time for workers in establishments with ten or more workers, in major urban
areas or developed regions.12
Moreover, often minimum wage regulation is regarded as a key determinant of general wage
movements and structures. Currently, out of 187-member states of ILO 8% of them have no
minimum wage at all, note that countries where minimum wage applied to all or part of the
private sector were counted as having a minimum wage.13
Minimum wages have been defined as “the minimum amount of remuneration that an
employer is required to pay wage earners for the work performed during a given period, which
cannot be reduced by collective agreement or an individual contract. 14 Minimum wages represent
the lowest levels of pay, established through a minimum wage fixing system, to be paid to
workers by virtue of a contract of employment.15 Minimum wages have three aspects:16 a) the
remuneration for work performed by the worker, b) the workers‟ basic income (and source of

9
See ILO: Minimum wages in Latin America, Studies and Reports, New Series, No. 34 (Geneva, 1954).
10
Supra note 7 p-9
11
Supra note 7 p-10
12
Ibid
13
ILO, Estimate Referred Under Minimum Wage Policy Guide of ILO, https://www.ilo.org/wcmsp5/groups/public/-
--ed_protect/---protrav/---travail/documents/genericdocument/wcms_508526.pdf accessed 17 June 2020
14
ILO: General Survey concerning the Minimum Wage Fixing Convention, 1970 (No. 131) available at
https://www.ilo.org/wcmsp5/groups/public/---ed_norm/-- accessed 17 June 2020
15
http://www.ioeemp.org/fileadmin/ioe_documents/publications/Policy%20Areas/employment/EN/_20140415__IO
E_Guidance_Paper_on_the_Minimum_Wage__April_2014_.pdf accessed 12 June 2020
16
Ibid
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purchasing power), c) a production cost. Minimum wages can be set by statute, collective
bargaining agreements, decisions of national boards, or arbitration awards.

Regarding ILO in time when ILO committee made a survey on minimum wage they emphasize
that there is no instrument defines the term “minimum wage” in compressive way. 17 The
Committee considered that the minimum wage may be understood to mean “the minimum sum
payable to a worker for work performed or services rendered, within a given period, whether
calculated on the basis of time or output, which may not be reduced either by individual or
collective agreement, which is guaranteed by law and which may be fixed in such a way as to
cover the minimum needs of the worker and his or her family, in the light of national economic
and social conditions”.

So, Generally from among the above insertion we can adduce that Minimum Wage means the
smallest amount of money or remuneration that an employer is required to pay for wage earners
for the work performed during a given period, which cannot be reduced by collective agreement
or an individual contract regardless of the method of fixing them.

2.1. THE COMPONENTS OF THE MINIMUM WAGE

A number of national laws do not indicate the elements of remuneration that make up the
minimum wage, and among those that contain indications on the subject, it is difficult to identify
general trends due to significant differences on the following points: the inclusion of the basic
wage only or, on the contrary, the inclusion of all or part of bonuses, tips, commissions,
allowances and other additional payments; the taking into account of only money wages or,
where applicable, also the cash value of benefits in kind; and the indication of whether or not
“wages” within the framework of the legal provisions on the minimum wage, exclude overtime
pay. The legislation in several countries simply provides that only the basic wage is taken into
account for the purpose of the minimum wage. This is the case, for example,18 in Antigua and
Barbuda, Chile, Hungary, Malaysia and the former Yugoslav Republic of Macedonia.

17
ILO: General Survey of 1992, para. 27
18
Supra note 15
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So generally In many cases, total wages or earnings include different components, such as:
basic pay annual bonuses, tips, in-kind benefits, productivity and performance pay, allowances
and premiums for non-standard work hours or dangerous work. But Convention No. 131 does
not explicitly indicate the elements to be included in the minimum wage.19 So clarity is needed
for a minimum wage policy to be operational.

2.2. PURPOSE OF MINIMUM WAGE

The purpose of minimum wages is to protect workers against unduly low pay. They help
ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all
who are employed and in need of such protection. In other word the purpose of minimum wage
laws is to stop employers from exploiting desperate workers. The minimum wage should provide
enough income to afford a living wage. That is the amount needed to provide enough food,
clothing, and shelter.20 Although the minimum wage protects workers from exploitation, it hasn't
kept pace with inflation. Minimum wages can also be one element of a policy to overcome
poverty and reduce inequality, including those between men and women, by promoting the right
to equal remuneration for work of equal value. Minimum wage systems should not be seen or
used in isolation, but should be designed in a way to supplement and reinforce other social and
employment policies. Several types of measures can be used to tackle income and labour market
inequality, including pro-employment policies, social transfers, and creating an enabling
environment for sustainable enterprises.21 The purpose of a minimum wage, which sets a floor,
should also be distinguished from collective bargaining, which can be used to set wages above an
existing floor. In modern times, minimum wage law also serves the purpose of establishing a
"living wage"--mostly for lower-class families that depend on the manual labor jobs which often
pay the least.22

19
ILO General Survey 2014 on minimum wage systems , p. 19.
20
https://www.thebalance.com/us-minimum-wage-what-it-is-history-and-who-must-comply-3306209 accessed 11
June 2020
21
https://www.ilo.org/global/topics/wages/minimum-wages/definition/WCMS_439072/lang--en/index.htm accessed
19 June 2020
22
https://smallbusiness.chron.com/purpose-minimum-wage-2770.html accessed 19 June 2020
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2.3. IMPORTANCE AND IMPLICATION OF INTRODUCING

MINIMUM WAGE SYSTEM

Under this topic the writers tries to elaborate reasons that necessities countries for the
introduction of minimum wage system in their legal system. Governments introducing minimum
wage policies basically aim to protect low-income workers through the introduction of minimum
wages based on country specific factors such as the cost of living, welfare Policies, labour
market conditions, the inflation rate and other economic factors and trends. 23 The rationale
driving decisions to introduce minimum wages is related to:24

1. Fairness/ reducing inequalities- Minimum wages aim at decreasing wage inequalities

between the bottom and the middle of earnings distribution. The same idea of fairness is often
incorporated into social welfare, which governments seek to maximize, also as a political
strategy.
2. Poverty alleviation-Minimum wages are often associated with poverty reduction, but in
reality have been acknowledged as ineffective in alleviating poverty as they are not well targeted
to the poor.
3. Imbalance of power in the employment relationship-Minimum wages are said to mitigate
the potential effects that could arise from the power imbalance between enterprises and workers,
which might lead to workers accepting lower wages to obtain employment.
4. Incentives to work-Minimum wages could be justified within the framework of incentives, by
motivating unemployed individuals to enter the workforce if the minimum wage is greater than
benefits received through social support. Furthermore, minimum wages can increase the effort
made by workers, as the rewards increase and the opportunity costs of losing the job become
higher.

2.4. LEGAL INSTRUMENTS OF MINIMUM WAGE SYSTEM

The UDHR is a milestone document in the history of human rights. Drafted by representatives
with different legal and cultural backgrounds from all regions of the world, the Declaration was
proclaimed by the United Nations General Assembly in Paris on 10 December 1948.25 It sets out,

23
Supra note 15
24http://www.ioeemp.org/fileadmin/ioe_documents/publications/Policy%20Areas/employment/EN/_20140415__IO
E_Guidance_Paper_on_the_Minimum_Wage__April_2014_.pdf accessed 14 June 2020
25
https://www.un.org/en/universal-declaration-human-rights accessed 19 June 2020
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for the first time, fundamental human rights to be universally protected. Article 23(3) of UDHR
recognizes the right of persons to get just and favorable remuneration so as to ensure “an
existence worthy of human dignity”. The American Declaration of the Rights and Duties of Man,
adopted by the Ninth International Conference of American States in 1948, is drafted in similar
terms to the Universal Declaration of Human Rights. There are also other international
documents like ICCPR and ICESCR and now a days many of its provisions are incorporated into
universally accepted customary international laws.26 Article 7 of ICESCR also recognized the
right to fair wage and a decent living as a result of just and favorable conditions of work.
Ethiopia is acceded to this covenant since 11 June 1993. 27 In the context of the Council of
Europe, Article 4 of the European Social Charter (revised), 1996, recognizes the right of workers
to fair remuneration.28 51 More specifically, States parties undertake to recognize the right of
workers to remuneration sufficient to ensure for them and their families a decent standard of
living.

In Africa the Organization of African Unity, the predecessor of the African Union, adopted at
the session of its Assembly of Heads of State and Government in 1981, the ACHPR (also known
as the Banjul Charter), which entered into force in 1986. The Charter only contains a general
provision under Article 15 that every individual shall have the right to work under equitable and
satisfactory conditions, and shall receive equal pay for equal work. However, the African
Commission on Human and People‟s Rights, established under the Charter, adopted in 2010
“Principles and Guidelines on the Implementation of Economic, Social and Cultural Rights in the
African Charter on Human and People‟s Rights”. With respect to Article 15 of the Charter, the
Principles and Guidelines indicate that “access to equitable and decent work, which respects the
fundamental rights of the human person and the rights of workers in terms of remuneration can
be critical for both survival and human development”. 29 More specifically, this instrument
elaborates that the right to work includes the obligation of the State to ensure the right of

26
Hurst Hannum, „The UDHR In National and International Law‟,3(2) Health and Human Rights 145
https://cdn2.sph.harvard.edu/wp-content/uploads/sites/125/2014/04/16-Hannum.pdf accessed 19 June 2020
27
United Nation Treaty Collection, Status of Treaties
https://treaties.un.org/Pages/ViewDetails.aspx?src=IND&mtdsg_no=IV-3&chapter=4&clang=_en accessed 20
June 2020
28
https://www.ilo.org/wcmsp5/groups/public/---ed_norm/- accessed 19 June 2020
29
Principles and Guidelines on the Implementation of Economic, Social and Cultural Rights in the African Charter
on Human and People‟s Rights para 57
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everyone to equitable and satisfactory conditions of work, including, among others, fair
remuneration.
Now let us see Minimum wage under ILO. It is clear that the main document that regulate
minimum wage is ILO constitution. Although at the time when the ILO was established,
minimum wages had only been set in a few countries, including Australia, France, New Zealand,
Norway and the United Kingdom, and only covered certain categories of workers. 30 Finding
ways to ensure the payment of decent wages has been a fundamental concern of the ILO since its
foundation. The original Constitution of the Organization, established in 1919, listed the
provision of an adequate living wage among the improvements in conditions of labour urgently
required to combat social unrest and promote peace. 31 It specified as an objective for member
States the payment to the employed of a wage adequate to maintain a reasonable standard of life
as this is understood in their time and country. Then the issue of minimum wage fixing could be
considered by the 1927 session of the International Labour Conference and For the first time in
the history of the ILO, the issue of minimum wage was the subject of a double discussion
procedure, which resulted in the adoption of the Minimum Wage-Fixing Machinery Convention,
1928 (No. 26), 32 and Recommendation, 1928 (No. 30). With more than 100 ratifications,
Convention No. 26 remains to this day one of the most widely ratified ILO Conventions. It is
complemented by Recommendation No. 30, which calls for the participation of women in wage-
fixing bodies and for strong enforcement measures to protect law-abiding employers from unfair
competition.33 But still now Ethiopia is not a signatory to this convention. Adopted after the
world had witnessed its worst economic crisis and in the final months of the Second World War,
the 1944 Declaration concerning the aims and purposes of the ILO (known as the “Declaration of
Philadelphia”, which forms an integral part of the ILO Constitution), reaffirmed that “poverty
anywhere constitutes a danger to prosperity everywhere” and advocated world programmes that
will achieve "a minimum living wage to all employed and in need of such protection". 34 In the
second half of the twentieth century, a Conference made an effort to extend minimum wage
protection to hitherto excluded categories of workers. The Wages, Hours of Work and Manning

30
A. Marinakis: The role of the ILO in the development of minimum wages (Geneva, ILO, 2008), p. 3.
31
Constitution of the ILO, preamble para. 2.
32
Convention No. 26 entered into force on 14 June 1930 and has currently been ratified by 103 States
33
ILO Minimum guide wage policy p-8
34
https://www.ilo.org/legacy/english/inwork/cb-policy-guide/declarationofPhiladelphia1944.pdf accessed 19 June
2020
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(Sea) Convention, 1946 (No. 76), for the first time, set a specific amount for the minimum wage
for seafarers. Then the adoption of the Social Policy (Non-Metropolitan Territories) Convention,
1947 (No. 82), 35 and at the national level, the regulation of wages in agriculture developed
between the two world wars, and the examination of this national legislation facilitated the
preparatory work for the Minimum Wage Fixing Machinery (Agriculture) Convention, 1951 (No.
99), 36 and the Minimum Wage-Fixing Machinery (Agriculture) Recommendation,1951 (No.
89).37 These convention is an extension of minimum wage protection to previously excluded
categories of workers.
Then In 1970, ILO adopted the Minimum Wage Fixing Convention, 1971 (No. 131), which is
considered to offer broader protection than that envisaged by ILO Convention No. 26.38 This
convention No. 131 encourages member States which ratify to establish a system of minimum
wages.39 The ILO Minimum Wage Fixing Convention, 1970 (No.131) and its Recommendation
(No.R135) are meant to help ILO member states establish a system of minimum wages.40 The
key objective is to give wage-earners the necessary social protection in terms of minimum
permissible levels of wages. In addition to establishing minimum wages, these standards address
an important issue not addressed by ILO Convention No. 95, namely underpayment of a
minimum wage, which is addressed in ILO Convention No. 131.41 Article 2, Paragraph 1 of ILO
Convention No. 131 addresses this and further suggests that “appropriate penal and other
sanctions” be applied in national law to address any failures to pay the minimum wage. other
ILO conventions, such as the ILO Labour Inspection Convention, 1947 (No. 81) and the ILO
Labour Administration Convention, 1978 (No. 150) provides labour inspection plays in ensuring
accurate wage payments, and Article 21 of ILO Convention No. 81 requires that the labour

35
Wages, Hours of Work and Manning (Sea) Convention (Revised), 1958 (No. 109)
36
Minimum Wage Fixing Machinery (Agriculture) Convention, 1951 (No. 99), Entered into force: 23 Aug 1953,
Adopted in Geneva, 34th ILC session (28 Jun 1951).
37
Furthermore, Article 24 of the Plantations Convention, 1958 (No. 110), provides that the fixing of minimum
wages by collective agreement shall be encouraged or, in the absence of collective agreements, by other
arrangements.
38
https://www.ilo.org/global/standards/WCMS_235303/lang--en/index.htm accessed 18 June 2020
39
ILO Conclusions of the Committee for the Recurrent Discussion on Social Protection (Labour Protection),
International Labour Conference, 104th Session, Geneva 2015.
40
Article 1, paragraph 1 of Convention No. 131
41
Article 2, Paragraph 1 of ILO Convention No. 131 states, “Minimum wages shall have the force of law and shall
not be subject to abatement, and failure to apply them shall make the person or persons concerned liable to
appropriate penal or other sanctions”.
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inspection service compile a report on all investigations conducted during a calendar year. 42 By
the end of 2019, Convention No. 131 had been ratified by 54 member States.43 Ethiopia is not a
signatory to this convention until now.

3. THE MINIMUM WAGE SYSTEM IN ETHIOPIA: COMPARATIVE

ANALYSIS
3.1. INTRODUCTION
As it has been explained in the preceding part minimum wages represent the lowest levels of
pay, established through a minimum wage fixing system, to be paid to workers by virtue of a
contract of employment. In many cases, total wages or earnings is also include different
components, such as: basic pay annual bonuses, tips, in-kind benefits, productivity and
performance pay, allowances and premiums for non-standard work hours or dangerous work and
there are immense differences between countries in terms of administration of minimum wage
system. Countries have also their own way of setting minimum wage rates set for different
regions and/or different occupations, age, qualifications, etc. within the same country.
This part of the Article primarily deals with Ethiopian minimum wage system based on laws
and policies focusing on minimum wage of workers those covered by the labour proclamation.
The issues are dealt with special consideration of others countries minimum wage system and
draw comparative analysis with best practices of countries selected for these article.. Specifically
this part of the article is the main part devotes to cover the following concepts. It begins with this
introduction that high lights the chapter and minimum wage policy and effect of lack of
minimum wage laws as well as need of introducing minimum wage system in the new labour
proclamation.
Under this Article the writer clarifies effect of lack of minimum wage system in Ethiopia,
reason that necessitate Ethiopia to introduce minimum wage board in its law, impact of
introducing minimum wage system in Ethiopia specially in protecting employee right in one side
and attracting investment in other side, characteristics of Ethiopian newly minimum wage
system, how Ethiopia‟s minimum wage system is regulated and administered which is related

42
Ibid
43
https://www.ilo.org/dyn/normlex/en/f?P=NORMLEXPUB:11300:0::NO:11300:P11300_INSTRUMENT_ID:3122
76:NO accessed 19 June 2020
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with legal and institutional arrangement and finally the possible draw backs and challenges the
country may face in implementing the new minimum wage system will be addressed.

3.2. EFFECT OF LACK OF MINIMUM WAGE SYSTEM IN ETHIOPIA.

Minimum wages have been widely introduced to protect the workers against; unduly low pay,
achieve various economic and social goals namely: overcome poverty and ensure the satisfaction
of the needs of all workers and their families, give wage earners necessary social protection as
regards minimum permissible levels of wages, reduce wage inequality, set a wage floor,
contribute to establishing rules of game that are equal to all and reinforce social dialogue. Its
importance has been recognized in the international labour standards. 44 Researchers Sara L.
Rynes, Barry Gerhart, and Kathleen A. Minette says the problem of absence of minimum wage
law is reflected on the value of knowledge, because absence of minimum wage law encourages
employers to employee with lowest wage and this discourages those who spent their time for
study and researches, wage in developing countries have motivational factor. 45

There exist many effects regarding lack of minimum wage system in Ethiopia. First lack of
minimum wage has an effect of creating persistent exploitation, unjust living standard and
economic inequality with high income gap. The absence of minimum wage law results in lack of
equitable benefit sharing from effort, all goes to one party, the investor and a study revealed that
minimum wage accounted for as much as 80% of the growth in wage inequality. 46 This
economic inequality by itself creates instability in the state, economic instability grows to
political unrest and what we are perceiving in our country is resulted from this problem. Here
Not only this, minimum wage law may not be a solution for income inequality because the
experience of many states tells that there is no relation between having minimum wage and
income equality or vis versa. For instance, there is no minimum wage law in Sweden, the law
provides for right of workers to form and join independent unions to bargain wages collectively,
and it prohibits antiunion discrimination.47Other study conducted in Mexico regarding the effect

44
Minimum Wage Fixing Convention, 1970 (No. 131) Art 1
45
Sara L. Rynes, Barry Gerhart, and Kathleen A. Minette, „The Importance of Pay in Employee Motivation‟ (2004)
43(4) Human Resource Management http://www.interscience.wiley.com accessed 20 June 2020
46
David S. Lee, „Wage Inequality in The United States During The 1980s: Rising Dispersion or Falling Minimum
Wage?‟ (1999) Quarterly Journal of Economics p- 979
47
US Department of State, Country Reports on Human Rights Practices for 2017, 20 April 2018 available at
https://www.state.gov/j/drl/rls/hrrpt/2017humanrightsreport/index.htm accessed 20 June 2020
 www.abyssinialaw.com

of the minimum wage in urban Mexico on income inequality reveals that Higher real minimum
wages reduce wage inequality among peoples.48According to CIA World Fact Book based on
World rank-high income inequality even if Ethiopia has no Minimum wage law but regarding
payment of wage Ethiopia ranks 113 globally.49 Second Employment income tax is one source of
revenue for the Ethiopia government,50 this means whenever the income of individuals increases
it has a positive effect on the revenue of government, in the present context of Ethiopian wage
the government cannot get appropriate tax from employment income tax. Third it has created
poor social security system: the wage of the worker has effect on the social security system like
pension, under Ethiopian law retirement gratuity is highly affected by the wage of the worker,
countries with better minimum wage law have good standard of living for their citizens and if
not, the society pays for the failure.

So generally introducing such system in Ethiopia is an important intervention tool for

protecting workers and ensuring a decent standard of living for them and their families,
contributing to improved productivity and an increase in employment by stimulating
consumption. It drives up the average wage, thereby leading to potential positive impacts on
consumption and employment.

3.3. IMPACTS OF MINIMUM WAGE SYSTEM IN ETHIOPIA ON

PROTECTING RIGHT OF EMPLOYEE AND ATTRACTING OF
INVESTMENT
Governments introducing minimum wage system basically aim to protect low-income workers
through the introduction of minimum wages based on country specific factors such as the cost of
living and other employee rights. In Other side FDI is often seen as a driver for economic
development as it may bring capital, technology, management know-how, jobs and access to new
markets. Policy-makers have, therefore, tended to emphasize the benefits that FDI can bring to
host economies, particularly in developing countries. Accordingly, many governments have

48
Belman, Dale: Wolfson, Paul What does the minimum wage do in developing countries? : A review of studies and
methodologies / Dale Belman and Paul Wolfson ; International Labour Office, Inclusive Labour Markets, Labour
Relations and Working Conditions Branch. - Geneva: ILO, 2015 (Conditions of work and employment series ; No.
62) available at : www.ilo.org/publns accessed 21 June 2020
49
See also Emma Charlton, these countries have the highest minimum wages, 20 Dec 2018, World Economic
Forum, available at https://www.weforum.org/agenda/2018/12/these-countries-have-the-highest-minimum-wages/>
accessed 20 June 2020
50
Federal Income Tax Procl. No 979/2019 Art. 6(1)
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developed policies to encourage inward FDI. So introducing minimum wage laws in their system
is taken as an indirect encouragement of investment. So our new labour proclamation provides
a better expectation for the employee for having adequate wage to ensure the wellbeing of many
workers in one side and Investment wage rate is one of the factors that affect attracting
Investment specially Foreign Direct Investment in many developing countries including Ethiopia
in other side. So under these section we try to see impact of these two competing interest on
newly Ethiopian minimum wage system.

3.3.1. IMPACT ON PROTECTING RIGHT OF EMPLOYEE

To protect and to increase labor welfare, the government issued minimum wages regulation.
Although the purposes of the minimum wage policy were widely accepted, there is great
disagreement about whether the minimum wage is effective in achieving its objectives. One of
the intended purposes of minimum wages is to improve the economic conditions of those
employee at the bottom of the wage distribution thereby reducing both inequality and the number
of working poor. 51 In spite of a large literature, the questions of whether minimum wage
adjustments actually reduce wage inequality remain controversial and empirically ambiguous,
depending on the country context including the way in which minimum wage policy is carried-
out.

Here before analyzing the impact of setting minimum wage on right of employment it is better
to see those arguments and studies made on the impact of level of minimum wage and labor
market outcomes, particularly employment and unemployment rates. How minimum wages
affect employment has been the most prominent issue with respect to the evaluation of minimum
wage policies, and indeed one of the most researched topics in economics. The question is
clearly important from a policy perspective, as any potential benefits of the minimum wage in
terms of higher earnings are offset by adverse employment effects that may result. But the
employment effects of minimum wages are also significant to economists because they provide a
means of testing alternative models of the labor market. The impacts of minimum wage laws,
and their desirability, have been debated in textbooks and in policy circles for decade elsewhere

51
According to the ILO, the minimum wage is understood to mean “the minimum sum payable to a worker for work
performed or services rendered, within a given period, whether calculated on the basis of time or output, which may
not be reduced either by individual or collective agreement, which is guaranteed by law such a way as to cover the
minimum needs of the worker and his or her family, in the light of national economic and social conditions” (ILO,
1992)
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in the world. The standard elementary treatment of minimum wage policy views its impact as
unambiguously negative.52In a competitive market where unrestricted supply and demand forces
combine to determine a unique equilibrium employment and wage level, the imposition of a
minimum wage greater than the market-clearing wage creates true unemployment.53Here Brown
in his study provides level of minimum wage and employment rate has negative correlation. 54
The majority of empirical studies of minimum wage effects on employment and unemployment
have found small, but generally statistically significant, negative impacts of minimum wage
55
increases on the employment rate of “at risk” groups. However, in a number of cases no
significant employment effects have been found, and in a few event studies of the minimum
wage, prominently featured in Card and Krueger there were indications of positive employment
effects. 56 Card and Kruger in their study provides even reasonably substantial increases in
minimum wage rates may have no, or even positive, effects on employment levels.57

From the analysis it can be concluded that minimum wage policy has multiple impacts on
growth, the labor market, and households. The simulations show that a rise in wages in urban
and rural areas has differential impacts for rural and urban areas. Further, the results reveal that
increases in wages would lead to an increase in the price level, thereby, indicating that the policy
contributes to inducing inflation in the economy. Finally, a rise in wages has overall a positive
effect on household income and consumption, as well as on government income. This in
conclusion is shows an overall positive effect of minimum wage.

In case of Ethiopia CETU in 2012 E.C in its Country Situational Report provides the precarious
employment is one of the problems which the Ethiopian workers are facing now. In such a case,
workers are not in a position to enjoy their right to occupational safety and Health. The payment,
whatever you call it, is not livable. Job insecurity is one of its characteristic features. The
national minimum wage was introduced because of to increase income for workers and to
improve their living standards. So it has to properly function to achieve the intended result. The
52
Christopher J. Flinn; The Minimum Wage and Labor Market Outcomes; The MIT Press Cambridge,
Massachusetts London, England,2011 p-55
53
Ibid
54
Brown, Charles. Minimum wages, employment, and the distribution of income. In Orley Ashenfelter and David
Card, eds., Handbook of Labor Economics, vol. 3B. Amsterdam: North-Holland, p-63
55
Supra Note 51 P-75-76
56
Card, David, and Alan Krueger. 1994. Minimum wages and employment: A case study of the fast-food industry in
New Jersey and Pennsylvania. American Economic Review 84 (4): p-93.
57
Ibid
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newly provided Ethiopian minimum wage board has a purpose of setting minimum wage for
workers.so such Minimum wage regulation prohibits the payment of wages below a specified
threshold. So such regulation has the following advantage for Ethiopian workers. Firstly, such
legislation is to sustain the living standards of low-paid workers. In other word the minimum
wage represents a basic requirement and a good way of improving or maintaining the standard of
living of the low-paid and their families. Secondly, the minimum wage is a way of protecting
vulnerable workers who are not able to organize and thus prevents exploitation. Thirdly, such
minimum wage legislation is a means of redistributing income from capital to labour. Finally,
negotiations around the minimum wage promote social dialogue. So that is why the arguments in
favor of minimum wages have gained momentum in Ethiopia as an important intervention tool
for protecting workers and ensuring a decent standard of living for them and their families,
contributing to improved productivity and an increase in employment by stimulating
consumption

However, from the employer‟s point of view, setting minimum wage have also its own positive
impact. Firstly, the minimum wage is a way of raising productivity by motivating workers. that
means if a firm willing to pay their workers with a wage higher than the previous customs wage ,
it will motive them to be more responsible in their task. Secondly, uniform wages, such as the
minimum wage, contribute to reducing labour turnover, which can be very costly for firms.
Thirdly, the minimum wage strengthens social cohesion and is a way for employers to ensure
social peace by avoiding conflicts among workers. From government point view introducing
minimum wage system in Ethiopia has also its own positive impact. Governments, a major
purpose of the minimum wage is certainly to contribute to alleviating poverty. The minimum
wage can act as a social safety net in countries where social security is as yet little developed.
Governments have also used the minimum wage to redistribute income in society, to promote
productive employment and to enhance demand driven growth.

Even if having minimum wage law by itself is not a goal for one country to achieve the
intended purpose. It is better to follow the general operation of the system in detail. The impact
of the minimum wage on employment will vary by economic sector, type of worker depending
on production technologies, and, in particular, the degree of substitution between types of skills.
For example, a minimum wage can reduce the employment of low-skilled workers but increase
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the employment of high-skilled workers. So increment and adjustment process should be seen
strictly by balancing the interest of general countries economy and right of workers. For
Example Small and regular increases in the minimum wage are better than brutal adjustments
following years of stability in nominal terms. In these area Ethiopia should take lesson of
Vietnam by which, sizeable increases in the minimum wage were estimated to have no negative
effect on the level of employment. Additionally Nguyen in his study based on empirical evidence
of the employment effects of minimum wages in the year 2014 which is made in Vietnam
reveals that a small decrease or increase in employment (with an elasticity of around -0.1) have a
positive effect on employment. 58 Regarding labour force Ethiopia‟s labour force survey shows
paid employees representing only 10 per cent of the working population in 2013, while “unpaid
family workers” and “self-employed” account for the highest shares of the country‟s registered
labour force.59

3.3.2. IMPACT ON ATTRACTING INVESTMENT

In general term investment is often seen as a driver for economic development as it may bring
capital, technology, management know-how, jobs and access to new markets. Policy-makers
have, therefore, tended to emphasize the benefits that investment can bring to economies,
especially in developing countries. There exist many factors that necessitate investor to invest in
host state. Especially regarding FDI, such type of investment bring bundle of benefit for the host
country. It is clear that the investment made in the host state definitely will enhance the
economic development of the host state. It would create an employment opportunity for the
residents of the host state and other benefits emanate from investments. However many people
argues specially for developing countries which have no enough economy and seek many
investment packages for investors in order invest in developing country one of bundle advantage
is access of cheap labour. So if such developing countries have established wage board that
determine minimum wage based on economy it is not the interest of the investor to invest there.
Here wage rate is among factors that affect FDI.60 A major incentive for a multinational to invest
abroad is to outsource labour-intensive production to countries with lower wages. If average

58
Nguyen. C. 2010. The impact of a minimum wage increase on employment: Wages and expenditures of low wage
workers in Vietnam. MPRA Paper No. 36751. (Munich: Personal RePEc Archive) p-45
59
Global Wage Report 2018/19: What lies behind gender pay gaps International Labour Office – Geneva: ILO,
2018
60
Article written by Tejvan Pettinger on Factors that affect foreign direct investment (FDI) 28 November 2019
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wages in the US are $15 an hour, but $1 an hour in the Africa-continent, costs can be reduced by
outsourcing production. This is why many Western firms have invested in factories in the Africa-
continent.61

In Case of Ethiopia investment is essential for the development of an economy. Development

becomes a right of people in general. A right to development is provided under the provisions of
Art. 43 of the Constitution. Hence, the people of Ethiopia, and nations and nationalities have the
right to sustainable development.62 What is most important is that international agreements to
which Ethiopia is a party must promote our right to sustainable development.63 Therefore, our
government is duty bound to ensure that foreign investment agreements promote the right of
development of our people. The investment objective of the Federal Democratic Republic of
Ethiopia is to improve the living standard of the peoples of Ethiopia by realizing a rapid,
inclusive and sustainable economic and social development. 64 To create more and better
employment opportunity for Ethiopians and advance the transfer of knowledge, skills and
technology required for the development of the country is another particular objective of
Ethiopian investment law.65

Even if the objective of investment is one provided above an investor needs natural and human
resources in a reliable manner to produce or manufacture. Thus, the investor could be attracted
by the abundance of natural and human resources available in developing countries. An investor
will prefer to invest in a country where human resources needed for the manufacture of
his/her/its produce are available in a large quantity and at a cheaper in price. 66 In addition, an
investor will be attracted to invest in a country where skilled, disciplined and cheap labour force
is found, other factors being equal. 67 So cheap work force is another area that offers a good
opportunity for investment in Ethiopia Workforce is abundant in Ethiopia. In addition, it is

61
Ibid
62
FDRE Const. Art. 43 (1)
63
Ibid, Article 43(2)
64
Investment Proclamation. No 1180/2020. Art 5
65
Ibid Art 5(2)
66
Mark B. Baker, “Awakening the sleeping Giant: India and Foreign Direct Investment in the 21 st Century,” 15
Indiana International & Comparative Law Review, 389 (2005),P-98
67
United Nations, FDI from Developing Transition Economies: Implications for Development, World Investment
Report, 2006, P.155
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inexpensive.68 So if a minimum wage is set in Ethiopia it seems it have some effect in attracting
investment to the country.

But, minimum wages and more generally labour costs are not the main variables that investors
compare. At least, they are not what investors should be comparing. Foreign investors should
compare many factors before investing in a given country, including political stability which
means First and for most, an investor needs to make sure that the political climate is stable and
predictable because it has a direct impact upon investment, exchange rates and unit labour costs,
which are the cost of labour per unit of output, rather than just labour costs. Trends in labour
productivity and the transparency of the minimum wage system seem crucial, particularly at a
time of renewed emphasis on sound managerial practices.. Different Report reveals that having
minimum wage system is not a reason for the decline of inflow of investment in Africa including
Ethiopia. But two factors are pointed out as reasons for the decline in the inflow of FDI in East
Africa. These concern the fact that the sub-region is poor in resources, and there is a political
instability. As a result the inflow of FDI into Ethiopia, Kenya, Madagascar and Mozambique
declined in 2005. 69. The skills and qualifications of workers remain low, however. In addition,
the industrial relations are sometimes a problem. 70 The fact that there are too many labour cases
in courts may be taken as an indication of the fact that industrial relations are not smooth.

So in general for Ethiopia introducing a minimum wage system in its labour code has no
negative effect(even if further study required) in attracting investment since if the government
works on other factors that affect for attraction of investment. The government is required to
make the minimum wage system transparency, efficient and predictable.

3.4. REGULATION AND ADMINISTRATION OF MINIMUM WAGE

SYSTEM IN ETHIOPIA.
This section of the article primarily deals with Ethiopian minimum wage system based on
laws and policies focusing on minimum wage of workers those covered by the labour
proclamation. Minimum wages are known to have profound impact not only on the labour
market but also the whole economy. In this regard, it is crucial that the minimum wage system

68
United Nations. World Investment Report, FDI from Developing and Transition Economies: Implications for
Development, 2006, P.40
69
Ibid
70
Ibid
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should be managed in ways that maximize its benefits while minimizing its potential negative
impacts. In order for societies to safeguard that wages are paid in an accurate and timely fashion
policymakers need to ensure that policies and laws are developed to provide guidance as to how
this should be done and what the consequences are when this does not happen. Many countries
around the world have sought to develop wage protection legislation, even though their form and
method may vary. While it is important to determine the key issues that should make up wage
protection legislation it is also vital to develop best institutional arrangement for enforcement of
this type of minimum wage legislation.

Since the arguments in favor of minimum wages have gained momentum in Ethiopia as an
important intervention tool for protecting workers and contribute for improved economy and in
response to this situation, Ethiopia adopts new labour proclamation which establish a wage board
who has a responsibility to set a minimum wage by taking many factors into consideration. So
under these section the writer try to elaborate policy and laws of minimum wage which are
embodied in Ethiopian law or try to make details us to the general legal frame work of Ethiopian
minimum wage system as well as regarding its administration aspect the writer wants to explore
the institutional arrangements of Ethiopian minimum wage system by making comparative
analysis as the case requires..

3.4.1. LEGAL FRAMEWORK OF MINIMUM WAGE SYSTEM IN

ETHIOPIA.
Minimum wages are known to have profound impact not only on the labour market but also
the whole economy. In this regard, it is crucial that the minimum wage system should be
managed in ways that maximize its benefits while minimizing its potential negative impacts. It is
not uncommon, especially in developing and transition countries, that well-intended policy
decisions on minimum wages lack solid evidence and analysis and thus defies their goals.
Therefore, good policies and legislations regarding minimum wages are a very important issues.
In order for societies to safeguard that wages are paid in an accurate and timely fashion policy
makers need to ensure that policies and laws are developed to provide guidance as to how this
should be done and what the consequences are when this does not happen. Many countries
around the world have sought to develop wage protection legislation, even though their form and
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method may vary. But, the Government‟s objective is to lift the wages of low-paid workers, and
increasing the minimum wage us one part of policy objective.
A wide range of rationales have been put forth to justify legislating minimum wages and, to
some extent, the motivation for the policy shapes labor regulations in each country.71 In terms of
setting wage policy, most countries around the world have adopted wage-setting policies,
typically through the legislative process, by establishing laws or by giving legal force to the
terms of collective agreements negotiated among employers, trade unions, and employees. 72
Such laws or rules for wage bargaining between employers and workers are
aimed at decreasing the likelihood of exploitation and reducing the number of working poor.73
Despite the intuitive political economy appeal of the minimum wage policy, it remains a
somewhat controversial policy instrument because policymakers often seek to achieve multiple
objectives with minimum wages, and adjustments are sometimes made on ideological grounds
rather than based on technical analysis. 74 Countries differ greatly in the goals they want to
achieve when establishing and modifying their minimum wage policies. Based on evidence from
around the world, countries can be grouped loosely into three groups according to their goals: the
first group of countries aims to reduce poverty and inequality by increasing wages of low-income
workers.75 the second group seeks to promote productivity growth; and the third group seeks to
address efficiency issues in the labor market that lead to negative consequences on employment
and workers.76 There are also countries that seek to use the minimum wage policy to meet all
three goals depending on their country context.
In some countries, the minimum wage policy affects non-wage benefits (social insurance,
pensions, among others), which affects a wider group of workers and hurts overall worker
welfare. For example, in Vietnam the minimum wage is related to the social insurance
contribution. 77 the social security administration uses the minimum wage as a base for
calculating the compulsory social insurance contribution by firms.

71
Ximena Del Carpio and Laura Pabon: Minimum Wage Policy: Lessons with a Focus on the ASEAN Region:
January, 2014. P-34
72
Blanchard, Olivier. (2002). "Designing Labor Market Institutions" Paper presented at the conference Beyond
Transition: Development Perspectives and Dilemmas, April 12-13, Warsaw. P-45
73
Supra note 71 p-1
74
Devereux, S. (2005) 'Can Minimum Wages Contribute to Poverty Reduction in Poor Countries?' Journal of
International Development :p- 912
75
Supra note 71
76
Ibid
77
Supra note 71 P-61
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Regarding Minimum wage policy and laws in Ethiopia previously there is no provision in the
labour proclamation which provide about minimum wage law in the country and the issue is left
for parties‟ agreement. In that time investors take the civil service minimum wage as a defacto
minimum wage. Concerning Minimum wage policy there is no separate policy which provide
about minimum wage in Ethiopia. Moreover, the National Employment Policy and Strategy,
drafted in April 2016 sets a framework favorable to the implementation of wage policies, the
foreword pointing to the fact that “it is recognized that poverty is less an outcome of open
unemployment than of low labour productivity and inadequate levels of income”. Indeed,
employment policy number 2 (“creating favorable conditions for the promotion of employment
opportunities by improving the functioning of labour market information and employment
services”) is developed through 7 strategies, one of them aiming at the establishment of a system
to determine minimum wages taking into account the country‟s stage of development,
competitiveness and the capacity to pay. The second Growth and Transformation Plan (GTP
II),78aims for instance at reducing the share of the population below the national poverty line
from 23.4% to 16.7% by 2020. According to the first pillar of the strategy set out in the GTP II
(“Sustained the rapid, broad based, and equitable economic growth and development witnessed
during the last decade”), the growth acceleration should contribute to the realization of the
country‟s medium term vision of becoming a lower middle income country where social justice
and equity prevail.79 Minimum wages in Kenya are specified as part of a national wage policy
set in place before independence and guided by the Regulation of Wages and Conditions of
Employment Act. 80 But in Ethiopia there is a single article is embodied in the new labour
proclamation which only provide about establishment of Minimum wage board. 81So Ethiopia
needs a National wage policy which is a base for legislation which have a relevance for the
proper achievement of multiple purpose of minimum wage system. therefore the country GTP
plan should give concern for the national employment policy strictly. Regarding laws Ethiopian
labour code simply provide about establishment of minimum wage board. Let start from the
definition of wages. Here the labour proclamation didn‟t give a definition for minimum wage

78
Growth and Transformation Plan II (GTP II), 2015/16- 2019/20, Volume I, National Planning Commission, May
2016, Addis Ababa.
79
Ibid
80
Mabel Andalón. 2008.- Carmen Pagés Inter-American Development Bank and IZA ‖ Paper presented for
Discussion Minimum Wages in Kenya, March 2008 ,German
81
Labour Proclamation No.1156/2019 Art 55(2)
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rather the proclamation starts by giving definition for what wage is only.82 For the laws in other
countries the baseline of the legal definition of wages begins with the minimum wage level. In
Cambodia 1997 of Cambodia Labour Code provides broader definition regarding minimum
wage and give special emphasize under separate legislation in labour code. 83 There is also a
similar fashion In Vietnam labour code. Such thing give better wage protection this can be
important as it defines what payments an employer is expected to pay to a worker, and can be the
focus of the worker for legal action if underpaid or not paid in a timely manner for the worker.
For example, Article 1 of ILO Convention No. 95 defines the term wages in broader manner for
making better protection of workers‟ rights, But Ethiopia is not a signatory to these convention
until now. So Ethiopian labour proclamation lacks such intensity and what minimum wage is
may be the subject of tension between the social partners in Ethiopia. Regarding components of
remuneration that make up the minimum wage our labour proclamation also didn‟t specifically
provided in our labour proclamation. But simply it seems that only the basic wage is taken into
account for the purpose of the minimum wage.
So generally regarding clear recognition of minimum wage Ethiopia labour code didn‟t give
separate and clear room concerning minimum wage unlike Vietnam, Cambodia and Tanzania
which make detail provisions in their Labour Code to ensure that workers receive a minimum
wage.

3.4.2. INSTITUTIONAL ARRANGEMENT FOR DETERMINATION

OF MINIMUM WAGE AND ITS CHARACTER IN ETHIOPIA
The methods of fixing minimum wages include a broad and varied range of practices that are
not easily categorized. The law and practice in the world clarifies in some states minimum wage
is fixed by the public authorities without the requirement of prior consultation of employers‟ and
workers‟ organizations. In other state minimum wages are fixed by the government after
consultation with the social partners. In many case minimum wage is fixed by collective
agreement or by legal mechanism including government decision or by certain bodies established
for purpose fixing minimum wage. In other word Minimum wage fixing could be set by
government or on tripartite basis (employers, trade unions and government) or either through
collective bargaining at national or regional or sectoral and occupational minimum wage rates.

82
Ibid Art 53
83
The 1997 Cambodia labour code Chapter VI Section 1
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So under these section the writer tries to make detail us to the basic patterns (forms) of minimum
fixing machinery based on the location of what appear to be the most critical decision-making
powers. Here Separate treatment is given to machinery where the key decisions are taken by the
legislature, the executive branch of government, boards with powers of effective
recommendation, and boards with final decision-making authority. However, the boundaries
between these patterns (forms) are not always clear because of the existence of complex and
changeable arrangements of shared responsibility. So under this section we need to see the nature
and character of Institutional arrangement of Ethiopian minimum wage system after consulting
each minimum wage fixing machinery pattern (forms).

3.4.2.1. CURRENT ETHIOPIA WAGE FIXING MACHINERY AND ITS

CHARACTER.
Here before clarifying Ethiopian Minimum wage fixing machinery and its character it is better
to see approaches of minimum wage fixing machinery practiced in different parts of the world.
There exist four patterns (forms) of determining minimum wage system which are practiced and
countries opt system which fit their status taking different criteria into account.

A. Acts of the legislature: In some countries, though very few, minimum wage rates have
been fixed by means of a legislative process. According to this approach the national
minimum wage can only be adjusted upwards or extended to new categories of workers
by means of legislative enactments.84 The best example of this approach is United State
and subject of criticism as well as a number of occasions attempts have been made to
change the law so as to provide for automatic or more flexible forms of adjustment.85
B. Executive authority decisions: In the interests of greater flexibility the minimum wage
legislation in a number of countries empowers the executive authority to fix rates and
86
decide upon coverage. Minimum wages are thus determined by order, regulation or
decree of the government or the minister of labour and before finalizing its decision, to
consult with tripartite general advisory or consultative bodies that are concerned with a
wide range of labour policy issues.87

84
Supra note 7 p-62
85
Abraham Weiss: "A look at the minimum wage and H.R. 10130", in Labor Law Journal
(Chicago), Mar. 1976, p. 132
86
Supra Note 83 p-64
87
Ibid
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C. Boards with powers of effective recommendation: According to these approach the

government delegate the task of preparation of minimum wage decisions to designated
bodies, while themselves retaining ultimate responsibility for the rates fixed. The
designated bodies, which go under a variety of appellations such as boards, councils,
commissions or committees, enjoy varying degrees of autonomy vis-à-vis the
government. 88 For example the boards are generally specialized in the sense that the
recommendation of minimum wage rates and ancillary decisions constitute their main
function. One of the character of these approach is that usually they are permanent rather
than ad hoc.
D. Boards with final decision-making authority: According to this approach wage boards
have been granted the final authority to fix minimum rates and as regards other aspects of
minimum wage policy.89 Under this approach the government's role is restricted to being
represented on the board and to making submissions. 90 So the board comprises
representation from the Government, workers and employers.

In case of Ethiopia the new labour proclamation which is entered into force in 5th September,
2019 for the first time provide establishment of minimum wage board which shall comprise
representatives of the Government, employees and trade unions together with other stakeholders
that will periodically revise minimum wages based on studies which take into account the
country‟s economic development, labour market and other considerations.91 This provision of the
labour proclamation stipulates establishment of minimum wage board which have final authority
to make a decision regarding minimum wage. Accordingly the government role is restricted to
being represented on the board and participates in decision process. So Ethiopia follows the
fourth approach and it is tripartite in character. In Tanzania the minister establishes a wage board
and the wage board is required to make findings regarding remuneration and wages and make a
recommendation for the Minister.92 So Tanzania follows the third approach. In Cambodia also
the minimum wage is set by a Prakas (ministerial order) of the Ministry in Charge of Labor, after

88
Ibid
89
Supra note 83 p-70
90
Ibid
91
Supra note 80
92
The Labour Institutions Act, 2004 Art 35(1)
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receiving recommendations from the Labor Advisory Committee. 93 In Vietnam, Government

assign MOLISA to take the lead in reckoning and formulating minimum wage in different
periods in cooperation with the VGCL, VCCI and VCA and it is the ultimate decision maker. In
Kenya a permanent General Wages Advisory Board is responsible for inquiring, on request, into
the fixing of a basic minimum wage and the Minister may amend or refer back any minimum
wage proposals made by the board. So in all four countries the government has a follow up us to
the final recommendation presented by the board.94 participation of workers' and employers'
representatives in Ethiopian minimum wage board can serve to enhance the legitimacy of the
decisions taken and promote democracy as well us promote their interest. Perhaps the direct
involvement of representatives of workers and employers in the deliberations of the boards is
likely to increase the acceptability of the ultimate decision. In other way government
participation can have also the advantage of contributing to the technical soundness of the
decisions by expanding the range of information on which they are based. But even if the
minimum wage board of Ethiopia is tripartite in character having a power of giving final
decision the writer questions the appropriateness of the approach for Ethiopia.
Experience of those countries seen under chapter 3 suggests the third approach fits best for
Ethiopia because making government in the board as only a member have its own limitation
because in the board the employee, employer as well as the government has their own objective
need to promote. For example the employers' representatives emphasized the need to prevent pay
increases that would substantially increase production costs, while the workers' representatives
tried to protect or increase workers' real incomes and to ensure for them their share of the
nation's economic growth. The government members for their part accorded priority to economic
stabilization objectives. So the government is under obligation to make sure the compatibility of
minimum wage set by the board with national economic and social policy and, where necessary,
make the required changes.

3.5. DRAWBACK AND CHALLENGES ON THE IMPLEMENTATION OF

MINIMUM WAGE SYSTEM IN ETHIOPIA
The need for legislation and strong institutions with regard to wage protection legislation and
mechanisms is highlighted further by drawbacks and challenges for those who make wage
claims. Even if the government needs effective minimum wage board but there exist problems
93
Art. 107 of the 2012 of Vietnam Labour Code.
94
Supra note 7 p-72
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which are technical or administrative in nature that may arise from time to time, particularly in
the functioning of minimum wage boards.
The potential benefits of the minimum wage for the economy and society are undeniable,
provided some conditions are met. But it doesn‟t mean that introducing such system has no
drawbacks. Drawbacks are diverse and these drawbacks may be expressed widely seen as having
a distortionary impact on the labour market. This can be provided in terms of increasing
unemployment because firms increase their productivity due to wage increases, workers may be
replaced in the medium or long term through automation. As a result unemployment may
increase. In other term setting minimum wage and revising periodically may create inflation and
affects the worker.
Regarding challenges since the minimum wage board is in an inception stage in Ethiopia the
Minimum wage may face the following challenge in its effective operation. Frist regarding
selection of board members acceptability of their decisions will depend no their proper
representation and as having appropriate qualifications. Especially in case of representative of
workers it is clear that in Ethiopia workers have less bargaining power when we compare with
employers and government. The workers may challenges the proper representation of their
interest in the board. For example both in Kenya and Tanzania the legislation simply
requires that, before appointments are made to wages councils or boards, the Minister shall
consult with any organizations appearing to him adequately to represent the employers and the
workers concerned. So in Ethiopia to pass such challenge Regulation of the Council of Ministers
which is expected near future to be enacted which determine the powers and responsibilities of a
Wage Board is required to have a provision to tackle such challenge as well as there exist many
ILO minimum wage related conventions which provide principles concerned with the selection
of board members. Second, there may exist delays in decision-making. the reason of delay may
vary. such as lack of available, updated and necessary information for studies, non-attendance of
members at meetings or the difficulty of scheduling meetings at a time convenient to all board
members because most of whom may have other responsibilities and some other legal procedural
challenges may occour.so in Ethiopia setting and revising minimum wage decision-making takes
longer than the prescribed limits and even for long years. The minimum wage laws of many
countries contain provisions specifically designed to eliminate commonly encountered causes of
delay. So in Ethiopia also the new regulation is expected to do so. Third, regarding criteria‟s that
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has been taken by the board for fixing the minimum wage may result controversy. This is
because Ethiopian new labour proclamation provides in time of fixing the minimum wage the
board should take into account the country‟s economic development, labour market and other
considerations.95What is other consideration is not provided in the labour code. So we can say is
that the needs of workers and their families or the capacity of firms to pay or inflation rate of the
country and etc. In other way there may be an instance under which these criteria, might be
contradictory and for which criteria priorities should be given. Finally Lack of clear enforcement
mechanism for non-compliance of minimum wage provision is another challenge for Ethiopia.
For example in Tanzania regarding enforcement of minimum wage there is a clear provision that
provides that any worker who has been paid wages below the prescribed minimum wage may
apply to the District Court or Resident‟s Magistrate‟s Court for the recovery of the amount by
which the worker was underpaid.

4. CONCLUSION AND RECOMMENDATION

The Article examined the Minimum Wage System in Ethiopia by making Comparative
Analysis with other Nations, for this reason the general concept of minimum wage system
starting from its brief overview is explored in detail. Finally the Ethiopian minimum wage
system is comparatively discussed under separate part.

A minimum wage is the lowest wage that employers may legally pay to workers. In Africa
almost all countries in Africa have minimum wage fixing programmes, the notable exceptions
being Ethiopia, Nigeria and Somalia as well as currently, out of 187-member states of ILO only
8% of them have no minimum wage at all. Having minimum wage has many purposes. The
purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just
and equitable share of the fruits of progress to all, and a minimum living wage to all who are
employed and in need of such protection. Now days the arguments in favour of minimum wages
have got acceptance in Ethiopia as an important intervention tool for protecting workers and a
minimum wage board who has a power to fix and revise minimum wage periodically is
established by new labour proclamation.

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Supra note 71
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Regarding International legal instrument the main document that regulate minimum wage is
ILO constitution.. Among these Minimum Wage Fixing Machinery Convention, 1928(N0.26),
Protection of wage convention,1949(No.95), Minimum Wage Fixing Machinery (Agriculture)
Convention, 1951 (No. 99) and Minimum Wage Fixing Convention, 1970 (No. 131) are
prominent convention in ILO. But Ethiopia is not signatory to all this convention until now.

The potential benefits of the minimum wage for the economy and society are undeniable,
provided some conditions are met. But it doesn‟t mean that introducing such system has no
drawbacks and challenge. Regarding challenges since the minimum wage board is in an
inception stage in Ethiopia the Minimum wage may face the following challenge in its effective
operation. 1st regarding selection of board members acceptability of their decisions will depend
no their proper representation and as having appropriate qualifications. Especially in case of
representative of workers it is clear that in Ethiopia workers have less bargaining power when we
compare with employers and government.so such thing may be a challenge. 2nd there may exist
delays in decision-making. the reason of delay may vary. such as lack of available, updated and
necessary information for studies, non-attendance of members at meetings or the difficulty of
scheduling meetings at a time convenient to all board members because most of whom may have
other responsibilities and some other legal procedural challenges may occur. 3rd regarding
criteria‟s that has been taken by the board for fixing the minimum wage may result controversy
because of lack of clear criteria settled under the proclamation. Finally Lack of clear
enforcement mechanism for non-compliance of minimum wage provision is another challenge
for Ethiopia.
Finally the writer of these Article forwards the following recommendations with regard to the
problems related to the Ethiopia minimum wage system concerning the legal framework for
regulating minimum wage, its institutional arrangement for fixing minimum wage as well as
regarding challenges that may encounter during implementation and other problems found by
study. Frist, It is clear that Ethiopia is a member of ILO but until now she is not a signatory to
those important conventions which are directly related to minimum wage. Those minimum wage
related convention such as Wage Fixing Machinery Convention, 1928(N0.26), Protection of
wage convention, 1949(No.95), Minimum Wage Fixing Machinery (Agriculture) Convention,
1951 (No. 99) and Minimum Wage Fixing Convention, 1970 (No. 131) provides a good
framework for best practice. Ratifying these Conventions is a prerequisite for best practice and
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implies having certain obligations. So Ethiopian government is required to ratify these

conventions. Second, Minimum wages are known to have profound impact not only on the
labour market but also the whole economy. Ethiopia needs a separate National minimum wage
policy which is a base for legislation and should base themselves on systematic monitoring and
analysis for their success. So the writer recommends based on scientific study Ethiopian
government is required to draft and apply sound national minimum wage policy. Third, The
new Ethiopian labour proclamation No.1156/2019 those provision which are dedicated for wage
will be amended in a manner including detail provision about minimum wage and arrangement
of minimum wage board. This is because the new labour proclamation like employment act of
those countries seen under chapter three clearly provide about definition of minimum wage,
components of minimum wage and other relevant concepts and indicate the measures taken or
envisaged in order to ensure that the labour legislation provides for appropriate sanctions against
the infringement of minimum wages as well as like establishing National Inspection Directorate
which have a labour inspectors for adequate monitoring of compliance of employers with
minimum wage legislation so as to effectively prevent such infringements. Fourth, The
government need to give attention to ensure genuine and effective consultations with the most
representative employers‟ and workers‟ organizations in all matters related to minimum wage
fixing as well as provide more detailed information and need to give reliable evidence for the
minimum wage board. Finally, Until now a regulation which provides us to right and
responsibility of minimum wage board is not issued. So near future when the regulation is
enacted it is required to provide detail responsibility us to provide a solution for the challenges
raised in the comparative analysis.