Minimum Wage Agitations: A Search for Gold in a Desert

Omolola Lipede
20% Complete
 31-Oct-2018

It is no longer news that the labour market in the Nigeria and the Federal government are at loggerhead on the issue of minimum wage rate. The Nigeria labour congress (NLC) and the government have been on the minimum wage saga for months, unfortunately, a Nash equilibrium is yet to be reached by the two players. The saga has been a back and forth scenario with the government offering to increase the wage to NGN25,000 from NGN18, 000 but the other party is not ready to dance to the tune; it is either NGN30,000 or no party. Okay, the story continues with meetings upon meetings and we can only sit and watch the end of the action film. State

To make our journey through this piece easier, minimum wage is the lowest remuneration that employers can legally pay their workers. In the field of economics there is no clear cut on the effect of minimum wage on the welfare and the economy at large, however, increase minimum wage has been perceived as a means to improve the standard of workers in the country. In the bid to improve Nigerian workers’ livelihood, the NLC sought to fight for an increment in the wage rate. Can this struggle make a difference?

The current minimum wage received by workers in the country is NGN18, 000 which was an adjustment made in 2010. Since 2010, the economic situation has changed and inflation has reduced the purchasing power of workers over time. Think about it, can you value NGN100 this day as you would a decade ago? I guess the answer in NO. Obviously, the current wage rate is not a living wage for workers, the agitation is necessary but is it timing?

The macroeconomic indicators are not showing any sign of a good state, the inflation rate is leapfrogging, and the exchange rate of the country is highly volatile. According to the Central Bank of Nigeria earlier this month, the economy is at the verge of slipping into recession come 2019 if the necessary athourities are not getting their hands ‘dirty’ to drag the nation beyond the mud. The economy is fragile growing by only 1.5 percent in Q2 2018, a fall from 1.95 percent in Q1 after the shock of recession. Also, the foreign reserves have been dwindling and the Debt Management Office (DMO) reports that the debt profile of the country is rising. The former minister of finance, Okonjo Iwela made an illustration about the economy of Nigeria with a cake, she brought cakes of different sizes and demonstrated how the economy will continue to shrink if the revenue base is not grown. She nailed the point really good; how can any economy live on debts without improving on it revenue base? That is a sign of irresponsibility. With all these realities staring at the country, is it safe to increase minimum wage?

The ‘Yeas’ for Minimum Wage

It is saddling to note that if some arithmetic is to be carried out, the current NGN18, 000 received is 6, 00 per day for 30 days. How can an individual with family and huge bills survive on 600 per day? That is the puzzling question. The increase in minimum wage will improve the standard of the living of workers in Nigeria, reduces poverty, reduces inequality and boosts the morale of workers to be more productivity. In the economics world, it is belief that paying high wages to workers boost their morale to exert more effort to work, so, increasing the minimum wage rate is like an ignition.

Over the years, the inflation rate has experienced nothing but a rise. This has reduced the real wage rate of workers in the country; the real wage rate is the nominal wage (the wage individuals take home) divided by the prices. So, increasing prices which is inflation translates to decrease in the wage rate. The increase in minimum wage is more likely to deliver income gains to low-skilled workers, it may also stimulates macroeconomic growth if productivity is shifted toward more highly-skilled sectors, possibly by inducing additional training for low-skilled workers. Some economists likewise opined that when the government increase the minimum wage, it serves as an engine growth.

The ‘Nays’ for Minimum Wage

Who doesn’t want a raise in his/her income? Just as my people will say ‘small work, big money’, but this cannot always be the case, because there are economic repercussions. Increase in national wage rate is not a ‘silver spoon’, there are consequences to pay. The theories of economics suggest that the macroeconomic effect of increase in minimum wage on the gross domestic product is ambiguous. The increase in minimum wage will reduce the level of employment in the country, creating more level of unemployment. When wage increases, the labour cost increases leading to a decrease in firm’s profit and job hours and cause adverse effect on the employment and the working hours.

More so, the increase in minimum wage will lead to inflation as a result of increase in the overall production cost of firms. To offset the increase in labour cost, the firms have to pass some costs burden to the consumers (and sometimes the consumers bear the entire burden, depending on the necessity of the goods). Consequently, the real wage rate of the workers didn’t improve; it is just like a journey in a circle.

Another disturbing factor to consider is the dual nature of the Nigerian economy. The economy has two sectors of labour market; the formal and informal sector. The formal sector has smaller labour force when compared to the informal sector. Minimum wage can only be binding in the formal sector but not in an informal sector, the latter is highly unregulated. Minimum wage cannot be binding in a sector that is not regulated. In Nigeria, the informal sector absorbs more labour force than the formal sector, so, where is the improvement of standard of living?

The Gist beyond the Economics Fundamentals

All the ‘yeas’ and ‘nays’ for the increase in minimum wage will set the ball of decision rolling and anyone can be in a dilemma of where to pitch his/her tent. Honestly, Nigerians need a raise in income owing to the fact that other countries have gone ahead when it comes to minimum wage. South Africa has approved the increase in minimum wage, other Africa countries except war-ravaged countries have a higher minimum wage than that of Nigeria; we shouldn’t be left out.

Presently, the Nigerian economy is unsteady, demanding for an increase in minimum wage now is like building a castle in the sand; what a great fall it would be. The economy is just recovering from recession and there are warnings of sliding into the economic crisis again, increasing the wage at this critical stage will lead to loss of jobs for low-skilled labour. Isn’t it hilarious to note that the country is yet to pay the salaries of its workers and agitations for an increase are made? The labour association confirmed it that at least, 33 of 36 states of the Federation owe workers and yet a raise is requested for. The government is not faithful to NGN18, 000 pledge would they be to NGN25, 000 or NGN30, 000?

How can the government pay NGN30, 000 in an economy where recurrent spending including personnel costs and overhead cost takes the lion share of the national budget? The government has overtime disbursed more funds to recurrent expenditure than capital expenditure, increasing the wage bills will only reduce the funds meant for education, health, infrastructure etc.

The NLC has better challenges to worry about which will serve as a means to an end. The labour should demand for increased investment in major sectors and the social amenities that take a larger percentage of the salary. Another issue of concern the NLC should address is the workers’ protection in terms of working hours, working conditions and job satisfactions. There are many companies in the country that the working environment is not conducive for the workers, neither are the working hours comfortable; but what can they do? Man pikin must chop.

When one weighs the pros and cons of the demand for increase in minimum wage rate, it is obvious that one outweighs the other. In an economy (like Nigeria) where the informal sector is larger than the formal sector, agitating for minimum wage rate is a wasteful journey. The employment laws of the country need reforming for workers to be more protected. More agitation for minimum wage will never satisfy the welfare of the people, stop looking for gold in a desert.

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