Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/333555 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
ILO Working Paper No. 151
Publisher: 
International Labour Organization (ILO), Geneva
Abstract: 
This paper examines the relationship between firm productivity, wage dynamics, and employment patterns in Ethiopia's manufacturing sector, using firm-level data from the Large and Medium Manufacturing and Electricity Industries Survey (LIMMS) for 2018-2020. In line with the objectives of the SAW-A project-which promotes adequate wages and sustainable livelihoods through improved wage-setting and social dialogue-the study explores how firm characteristics such as size, age, and ownership shape the translation of productivity gains into fair and decent remuneration for workers. The study addresses two key research questions: (1) To what extent does productivity growth translate into wage increases in Ethiopia's manufacturing sector? (2) How do firm characteristics mediate this relationship, particularly in terms of employment expansion and wage inequality? Using regression analysis, the paper estimates firm-level wage-productivity elasticity, controlling for sectoral, regional, and firm-specific factors. Findings reveal that a 1% increase in value added per worker leads to only a 0.2% rise in real wages, suggesting that only 20% of productivity gains are passed on to workers. Wage-productivity elasticity also varies significantly across subsectors, with industries such as beverages and textiles exhibiting stronger pass-through effects compared to food production. Additionally, the study highlights gender and regional wage disparities, with firms employing a higher share of female workers paying systematically lower wages and certain regions demonstrating high productivity but persistently low wages. By situating the analysis within the broader effort to promote adequate and living wages under the SAW-A framework, the paper underscores the structural barriers that prevent productivity growth from translating into better living standards. Strengthening collective bargaining, improving wage-setting institutions, and promoting equitable distribution of productivity gains emerge as critical pathways for ensuring that industrial development in Ethiopia supports both enterprise sustainability and decent livelihoods.
Persistent Identifier of the first edition: 
ISBN: 
978-92-2-042842-9
Creative Commons License: 
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Document Type: 
Working Paper

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