The Devastating Consequences of Insufficient Wages

There is one economic factor in the present society creating a ripple effect of instability, distrust, and despair. Wages, and specifically the insufficiency of wages across various industries, are key to understanding so many of Ethiopia’s social ills--which are otherwise pinned on Ethiopia’s culture, or blamed on individual and communal laziness, immorality or sin. So why are Ethiopian workers paid so little? Which kinds of employed work suffer the most from low retribution? What are the consequences of this situation and how exactly does one go about solving it?

WHAT DETERMINES WAGES?

These are complex questions that are being studied by economists using quantitative methods and a variety of case studies. Some claim that the insufficiency of wages is the result of a lack of productivity.

Of course, since the only measure of wages, according to this same circular argument, is productivity, all this really does is feed dangerous identitarian and culturalist notions that some groups of people are simply more hardworking and more talented than others. Since technology and infrastructure are also tied to productivity, this approach further contributes to the belief that advancements in these areas and in the development of human capital, by way of singular investment in STEM education for instance, is the solution to every problem whereas technological and infrastructural development must be tied to institutional and political stability, as well as social cohesion. That stability and cohesion, in turn, is threatened by the general insufficiency of wages and its ripple effect on other areas of social life beyond the economic sphere. The exodus of Ethiopians seeking better economic opportunities abroad, the disincentivization of traditional forms of work and the education it requires, and the bribery and corruption that comes to take over certain institutions whose employees are underpaid particularly in the public sector are not addressed by the technological and infrastructural advancements required for increasing productivity. Nevertheless, they are tied to the problem of wages.

In Ethiopia, wages are on the rise. By one estimate, for instance, low-skilled wages increased in just one year from 2017 to 2018 from just over 1500 ETB per month to just over 4000 ETB per month. Furthermore, as a result of recent changes to Ethiopian Labor Laws, a Wage Board has been established consisting of government representatives, employees, and trade unions all dedicated to offering workers better wages.

However, cost of living, property values and inflation are on the rise as well. By one estimate, Ethiopia’s inflation recently increased by over 24 percent in just one month. According to one Ethiopian economist, the increase in cost of living in Addis Ababa in particular is rapidly outpacing increases in income. According to this perspective, the gap between living costs and income is the result of an outdated production system and a changing scarcity premium--although one is left wondering how differences in “work culture” are measured, and to what such differences are attributed. Is it a coincidence that productivity, in particular an individual or a culture’s work ethic or talent, varies so widely from one context to another, perfectly mirroring differences in material surroundings?

As for rising property values, the argument has been made that the real estate boom in Ethiopia is directly attributable to the corruption and grift of the previous regime.

However, any society that experiences low wages in the public sector is sure to see the incentivization of various forms of corruption and bribery. Thus, not only do property values help negate any progress with regard to wages, they partly result from the enduring problem of the insufficiency of wages in the first place.

So, ultimately, the apparent rise in wages in Ethiopia is a useful mirage--especially since the significant spike in wages is occurring among some sectors only, and is certainly the exception and not the rule. But there are underlying power interests vested in maintaining the illusion of progress, when real wages in this country are obviously relatively paltry compared to real wages in the Industrialized West, which have themselves been stagnant since the 1970s.

Real wages are declining globally as inflation eats up pay increases. In Ethiopia as in many other contexts, the steep rise in the price of oil is partly responsible. Wage determination must, therefore, incorporate these factors which not only undermine any significant rise in wages, but also create a number of other costs for societies that import oil.

All in all, the reality of inflated prices and property values as well as the money supply itself, suggest that not only is the position of the average employee not bolstered, as the spike in wages might initially indicate, it is actually weakened in ways that only a comprehensive and expansive approach to wage determination could illustrate.

Some theorists point to the process of negotiation at the workplace as the key to wage determination. That negotiation takes place between individual workers, sometimes organized together for the purpose of collective bargaining, employers as well as other key players. However, this does not address the next, essential question: what is the underlying power dynamic between the various participants in these negotiations and how does that power dynamic perpetuate itself over the course of generations and throughout entire societies (aside, of course, from differences in wages). Although that is a highly complicated question, requiring a highly contextualized and nuanced set of answers, it is fair to say that given the lack of widespread access to education or advanced skills, the large and everexpanding supply of labor (which of course decreases the price of labor) and a general lack of collective bargaining clout, in many of these negotiations employers are the ones holding all the cards.

RESULTING ILLS

Leaving aside this complex question of wage determination which has come up in Ethiopia’s context with the controversy surrounding the exploitation of garment workers, who are said to be the lowest-paid in the world, and with the push for a universal minimum wage the impact of the glaring problem of insufficient wages is far-reaching, encompassing a number of social ills in present-day Ethiopia.

IN ORDER:

The development of the manufacturing sector is hindered by the lack of proper compensation for and incentivization of work, and by the high rate of employee turn over, which creates unnecessary costs for companies, as well as entire industries, and the manufacturing sector as a whole the mass exodus of skilled and educated individuals (in whom the society has invested significant resources as well as an opportunity cost) often known as “brain drain,” which is especially incentivized given the share of the economy represented by remittances through which emigrants are often able to support family members back home; The incentivization of non-productive pursuits of wealth, since wage work often does not bring in as much income as rent-seeking or similar pursuits, which in turn causes internal brain drain, since it is usually the same classes who have access to education and potential as skilled laborers, and therefore the most to contribute to society who also are from landed families and have little incentive to apply those skills and advanced education given how low-paying most bureaucratic jobs are compared to the income one earns from renting out even a small amount of property the rise of a hustler economy and the devalorization of traditional work;

The crisis of education, a significant social problem in and of itself, aggravated by the aforementioned devalorization of traditional work, since the ultimate reward for the pursuit of higher-level education is the attainment of a position in a traditional work place--and the wage that comes with it

The decline of vital institutions as a result of a wage structure that does not reward that institution’s members for their contributions;

The rise of corruption alternately from those shut out of the economy or those with privileged access to it; The forced reliance on bribery to substitute for decent wages, which compromises the integrity and efficiency of the civil service and the bureaucracy;

Of course, that erosion of values and trust is attributed to the culture or identity group, which in turn contributes both to illnesses of despair and the acceptance of destructive stereotypes, including by some within the society itself, who then become desperate to leave the country as the cycle begins again.

Is there a significant social problem in present-day Ethiopia which is not either directly caused or somewhat exacerbated by the insufficiency of wages?

Of course, exploitation and injustice, in the form of material deprivation and extreme poverty in spite of the personal contribution of one’s labor, while oreign and theoretical to those of us who have not truly experienced it, might be considered grave social ills in and of themselves. The compounding factors that ripple outward from the structure of compensation of labor, however, are beyond unjust. They are unjustifiable. The reduction of this issue of wages to a simple oldschool radical leftist analysis of class and exploitation is unnecessary. This is not about ideology not exclusively at least. Nor is it a matter requiring radical disruption of class systems or of global systems.

It is simply a matter of recognizing that wage determination is central to pretty much everything that troubles our society in the present day, leaving one key question: what is it that determines wages? Academics and policymakers must dedicate themselves to contextualizing and understanding the current determination of wages. Beyond that, politicians, policymakers and labor representatives must dedicate themselves to the planning and implementation of measures that aim and rapidly increasing and maintaining better wages for Ethiopian workers across the board. The public sector cannot fall behind the private sector, otherwise the gap in compensation will express itself in an inability to attract and develop talent for the public sector, undermining efforts at what is often called “good governance.”

Before any of this can take place, the Ethiopian government must abandon its initial position, which was widely held in the years preceding its rise to power, that low wages were somehow beneficial to the society as a whole--a belief reflected in policy..

There are some encouraging signs. Some officials seem to be shifting their rhetoric.

Hopefully, this shift in paradigm will also be reflected in policy in the years to come.