The newly issued public servants’ wage raise is expected to account for 8.3% of the national budget.
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Following the public servants' wage raise, a good sum will be injected into the economy. It’s as big as 8.3% of the budget approved for 2025/2026 (2018 Local Calendar). In essence, this is going to affect about 2.5 million public employees, some of whose salaries are getting pulled up by an astouning 81.5%. Even if a substantial percentage of it trails back to the government through pensions and taxes, employee wallets are getting a good boost. Of the ETB 160 billion, roughly 92.48 billion will make it to the individuals' wallets. On average, they are now 3082 birr richer a month.
ETB 3032 a month translated
Optimistically, this is going to help many people out of barely surviving through record-low pay. Abrupt reverberations are also likely. Unregulated, the consequential inflation could fire back, leaving people in worse conditions. Rise in rent, food prices, and cost of other goods and services may also make necessities unaffordable despite the wage increase. Let’s hope it doesn’t end up more complicated than it is.
However, this echoes wider into the country’s economy. It’s not just the nurse paying off her debt, or that IT guy is finally able to afford the gadget he’s been stalking online. Overall, consumer spending is expected to surge, and economic activities will flourish. Existing businesses will have more people who can afford their services and products. Innovative minds will take the chance to come up with business ideas, which people will be willing to spend the extra cash on. Agriculture, manufacturing, and the intangible goods sector will all be elevated by these stirs.
What entrepreneurs should watch?
The effect on businesses is conflicting when observed from an employer’s standpoint. If the government sustains the trend of improving wages, skills could drift into the government sector for better pay, challenging the overall performance of the private sector. The discrepancy between the two sectors’ pay is exceptionally high for technical jobs and senior positions, maintaining the status quo. However, the government could again phase in changes targeting those areas, reversing the high turnover. Private employers will have to step up their salary bargaining power. This digs deep into company accounts by amplifying payroll liabilities. The exertion to survive financially without compromising on the quality of what they offer will have to be worked out as talent gets more expensive.
Practically, the bigger companies will be less strained by the financial burden of expanded spending on salaries. They can manage to do relative wage raises, attracting and keeping talent. Start-ups and smaller companies, on the other hand, will struggle adjusting. Especially budget-constrained startups with a revenue model in its infancy will have the hardest time balancing their books. In despair, they could resort to incrementing the price tag on their products and services. This might be a quick fix, but in no time, it rips off price competitiveness.
Start-ups and smaller businesses should consider this strategically. Driving up prices isn't the sole course to staying afloat amidst financial pressures. Price Diversification of products and services, adding value to existing offers, expansion of customer base, and cutting down costs will help boost revenue streams. Alongside, they should make their working spaces favorable for employees. Boosting a healthy workplace culture, providing growth opportunities, and fostering work-life balance will draw and preserve the best talents, even if not for the highest pay. As new challenges unfold, a lot of weight lies on entrepreneurs to step up their game.
