New ESSP Publication: ‘Urban Wage Behavior and Food Price Inflation: The Case of Ethiopia’

This study examines the trends and behavior of urban wages in Ethiopia during the country’s recent inflationary episodes. We use the CSA Consumer Price Survey to construct a real wage series for the urban poor, and to conduct formal econometric tests of whether wages adjust to food and non-food price inflation over the short run and the long run. We find that although real wages were trending upward in the early 2000s, the rapid inflation episodes of 2007–2008 and 2010–2011 led to serious short run declines in purchasing power, on the order of 10–26% depending on the episodes, the region, and the wage indicator analyzed. The severity of these shocks justifies further consideration of social safety nets for urban areas.
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