The lack of tax revenues has stifled efforts to raise salaries, Tsvangirai said.
"No-one is paying tax at the moment. If government is not getting taxes, where will the government get the money to pay salaries?" he said.
"Your demands must be realistic and within the capacity of the government, which is the major employer."
Tsvangirai appealed to Zimbabwe's Congress of Trade Unions (ZCTU) to hold back from making its demands for a minimum wage of $454 until the government can tackle the country’s economic crisis.
"We have been in office for less than three months. I plead with you to please give us time," Tsvangirai, a former trade union leader, said.
Lovemore Matombo, the president of the ZCTU, had earlier told union supporters at the rally that national strikes and protests are on the agenda in order to put pressure on the government.
"If this is not met, the workers are going onto the streets," Matombo said.
Tsvangirai said that while his Movement for Democratic Change (MDC) is sometimes at odds with Mugabe's Zanu-PF, the government is working hard to improve the lives of Zimbabweans.
|Zimbabweans are struggling to survive
amid an economic crisis [AFP]
"We have our arguments, our quarrels but we want this country to succeed," he said.
"You know we would want to pay [more] ... but this has to be a process and we are working to resuscitate the economy."
Harare has called for millions of dollars of aid donations to kick start Zimbabwe's economy, which is suffering from the highest rate of inflation in the world.
But Western nations have said that pledges are conditional on Zimbabwe’s main parties making firm and sustained progress on the power-sharing deal.
Tendai Biti, Zimbabwe's finance minister, has said that his country is getting about $400m credit from African states.
Human Rights Watch has said that potential donor countries should not make payments to Zimbabwe until the country improves its rights record.
Supporters of Mugabe have in the last few years expropriated white-owned farms, while police have been accused of intimidating and attacking activists opposed to the president.
Mugabe, who has ruled Zimbabwe since the country's independence from Britain in 1980, has accused "racist" countries for causing the economy to crash.