Policy Analysis by CERPA: Rethinking Wage Structures: Is Ghana ready for an Hourly Pay System?

Introduction

Ghana’s labor market is changing rapidly. Globalization, technology, and new employment models are influencing it. The traditional monthly salary system may not fit these changes anymore.

The gig economy and rising living costs have increased interest in hourly wages. An hourly wage pays employees based on hours worked, linking productivity to income. This model is common in OECD countries like the U.S., Canada, and Germany.

In Ghana, the salary model provides stable monthly income but often ignores hours worked or individual productivity. Many Ghanaians, especially youth and low-income earners, prefer hourly wages for their fairness and potential for advancement.

With Ghana's minimum wage at GH¢19.97 per day, many struggle with rising living costs. This has intensified calls to rethink wage structures. The informal sector shows stark inadequacies in the current model, particularly affecting women.

This policy paper explores if Ghana can transition to an hourly pay system. It examines the benefits and challenges of this change while assessing the country's readiness for it.

Understanding Ghana’s Labor Market Dynamics

Ghana’s labor market has three key themes: informal sector dominance, underemployment, and gig employment.

Informal Sector Dominance

Ghana's labor market includes formal and informal sectors. The formal sector follows regulations while the informal sector dominates employment in services.

According to the Ghana Statistical Service (GSS), the informal sector employs nearly 80% of workers but contributes only 27% to GDP. This highlights low productivity in informal jobs like street vending or artisan work.

Workers in this sector often lack access to labor laws or social protections. A report links high informality to limited education and inadequate job opportunities.

The gap between productivity and earnings is widening in Ghana's economy. While formal sectors see wage growth, those relying on informal labor experience stagnation.

Underemployment and Irregular Work Patterns

Ghana faces widespread underemployment due to structural weaknesses in its labor market. Educated youth often accept jobs that do not utilize their qualifications fully.

Irregular work patterns lead to unstable incomes for many workers who rely on short-term engagements influenced by weather or demand fluctuations.

Although official unemployment was 3.01% in 2024 (World Bank), many lack regular full-time jobs as of April 2025.

Rise of Gig and Part-Time Employment

Gig work is becoming a popular alternative as formal jobs are scarce for graduates. These roles offer flexibility but lack security.

While gig work helps reduce unemployment temporarily, it reflects deeper issues within the formal job market that fails to provide quality jobs.

Current Wage Structures in Ghana

Ghana primarily uses a monthly salary model across both sectors with statutory deductions included for compliance purposes.

Wages are based on a national daily minimum wage of GHS 19.97 multiplied by working days each month. However, enforcement issues mean many earn below this threshold.

The Single Spine Salary Structure (SSSS) was introduced in 2010 for public sector pay standardization but disparities remain across sectors.

In contrast, most informal workers receive task-based or daily wages that are unregulated leading to income volatility and insecurity.

Rising disparities between fixed earners and those earning minimum wage hinder participation among low-paid workers affecting overall productivity.


Benefits of the Monthly Wage System

A monthly wage system offers predictable income at regular intervals for workers' financial planning needs such as food or rent payments.

Monthly salaried employees also gain access to benefits like healthcare or paid leave which enhance worker welfare.

This system supports formal employment structures increasing tax revenue while improving economic planning.


Limitations of the Monthly Wage System

However, guaranteed fixed incomes may reduce motivation for higher productivity without performance incentives.

Employers might face lower returns if productivity does not match wage expenses especially where profit margins are tight.

Fixed salaries can limit businesses' ability to adapt during demand fluctuations.


The Case for Implementing an Hourly Wage System

An hourly minimum wage could address inefficiencies while improving productivity among vulnerable workers.

This system accommodates part-time roles better than traditional models but requires careful rate setting reflecting inflation without risking job losses.


Benefits of the Hourly Wage System

Hourly positions offer greater flexibility allowing workers to adjust schedules around personal commitments enhancing job satisfaction.

Hourly employees may also qualify for overtime pay boosting their earnings during busy periods.

This structure ensures fair compensation based on actual hours worked promoting transparency.


Challenges Associated with the Hourly Wage System

However, hourly wages can lead to fluctuating incomes causing financial uncertainty.

Unlike salaried positions, hourly roles may lack stability during low-demand periods risking exploitation without proper enforcement mechanisms.

Job benefits such as pensions or paid leave are often absent making these positions less secure than salaried ones.


Key Differences Between Monthly and Hourly Wages

Understanding differences between these systems helps assess suitability for Ghana's context:
- Payment Structure: Hourly wages vary with hours worked; monthly salaries remain fixed regardless.
- Overtime Eligibility: Hourly workers typically receive extra pay beyond standard hours; salaried employees do not benefit from additional hours worked.
- Employment Benefits: Salaried roles usually include comprehensive benefits; hourly roles generally do not unless provided by employers.


Anticipated Implementation Risks of an Hourly Wage System

Short-term unemployment risks may arise due to pressure on small enterprises under compliance requirements leading potentially to job losses.

Inexperienced graduates might be marginalized as employers favor experienced candidates amid cost-conscious hiring practices.


To mitigate these risks effective skills training programs must accompany any implementation efforts ensuring inclusivity rather than exclusion.


Recommendations For Implementing an Hourly Wage System In Ghana

Legal reforms should amend existing laws defining hourly wages clearly alongside penalties against non-compliance ensuring fair compensation practices across sectors.

Phased rollouts should target vulnerable segments first focusing on agriculture value chains domestic work hospitality industries aligning with government initiatives promoting economic growth through inclusivity strategies aimed at raising awareness about rights under new structures preventing exploitation particularly within informal settings.



Strengthening labour enforcement mechanisms will require investment into expanding inspectorate divisions partnering with trade unions developing anonymous reporting systems supporting alignment towards fair policies fostering decent jobs social justice goals throughout all levels within society.



Conclusion

Ghana’s evolving labor market needs a rethinking of its wage structures ensuring fairness inclusivity economic resilience moving forward into future developments ahead where traditional models fall short addressing realities faced today regarding underemployment inequality impacting youth low-income groups alike requiring strategic planning caution transitioning towards more equitable dynamic responsive systems benefiting everyone involved ultimately creating lasting positive change throughout society overall!