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The Reality of the proposed ₦56,000 Minimum Wage

In line with the decent work agenda of the International Labour Organisation (ILO), minimum wage is, “the lowest wage that an employer is allowed to pay the employee, the price floor below which workers may not be willing to sell their labour.” Any wage below the minimum wage therefore, cannot guarantee a decent living for an employee. Being determined by law or by contract, minimum wage is a mechanism of social dialogue using the instrumentality of collective bargaining or by law through enactment by the parliament.

Economists see minimum wage as a double-edged sword. It may improve the workers standard of living, reduce poverty and inequality, and increase the productivity of workers through improved working condition. On the contrast, minimum wage especially when set above the labour market clearing value can increase inflation and unemployment of especially the unskilled less experienced labour, particularly in the short run, leading to insecurity. Despite these opposing views, minimum wage has existed as far back as 1804 when King James I formalised the act in Medieval England. The act was dissolved in the early part of the 19th century as capitalist embraced laissez-faire policies, but John Stuart Mill reintroduced it in 1848 and it was re-enacted into law by the government of New Zealand in 1894, Australia in 1896, the United Kingdom in 1909, the United States in 1938, and Nigeria in 1981.

In 1981, the minimum wage in Nigeria was fixed at ₦120 per month, reviewed upwards to ₦5,500 in 2001, and to the current ₦18, 000 in 2010 despite the ₦52,200 proposed by the Nigerian Labour Congress (NLC). In April this year, the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) submitted a formal proposal to the Federal Government of Nigeria for the minimum wage to be increased from the current ₦18,000 to ₦56,000, a 211% increase. Since then, there have been discussions on the justification for the proposal, its affordability, sufficiency, and sustainability.

In response to these, the author is of the opinion that the proposal is timely since the current minimum wage was signed with a lifetime of five years that elapsed in August 2016. In addition, using data from the World development Indicator, the author compared the current minimum wage in the country with that of some other African countries where we claim ‘giant’ vis-a-vis their per capita income. The result as contained in the graph below show that, out of the 19 African countries compared, Nigerian had second to the last (18th) position in the minimum wage rate but 11th and 7th position in inflation rate and adjusted net national income per capita in 2015/2016. These show that the real value of the minimum wage is now negligible relative to other African Countries. In addition, there is a high per capita income-minimum wage gap of about US$146.3, next only to South Africa, indicating high level of inequality and confirming that there is need for an increase in the minimum wage in Nigeria.

Ascertaining whether the proposed increase in the minimum wage will be able to sustain family budgets compared to that of 1981 requires comparing the increase in the minimum wage with that of exchange rate and the consumer price index from the reference year. Being an import dependent country, an increase in exchange rate means that it will take more naira to import one  dollar worth of foreign goods and services and hence an increase in  the Consumer Price Index (CPI), which is the weighted average of prices of a basket of consumer goods and services. This will lead to a decrease in the real value of any given nominal wage and workers at the previous wage rate will no longer be able to afford the living standard as before the increase. 

The result as contained in the graph below shows that the percentage changes in minimum wage have always been smaller than that of exchange rate and CPI, indicating that the increases in minimum wage were not enough to ensure that workers maintain their family budget and purchasing power compared to the base year.

On the issue of whether the proposed minimum wage is affordable and sustainable given the current economic condition in the country, the writer has a big “YES” as an answer. The duplication of salaries and wages everywhere in the first 2017 budget presented already accounts for a 100% increase in salaries and wages of the federal employees. Yearly, the budget has a significant amount allocated for medical equipment and maintenance of the hospital in the Presidential Villa. Yet, the presidents always rush to London whenever they are sick, spending millions of dollar again. Does this not amount to double counting? Again, every year, the government spends billions of Naira paying huge salaries termed “pension” to former governors and deputy governors, Senators and other former political office holders, most of whom are occupying another political position or appointments which is tantamount to double salary in millions, and has been termed ‘morally and ethically reprehensible’.  

Specifically, in Lagos state, it was approved in 2007 that any ex-governor will be given two houses, one in Lagos, and another in Abuja, costing around ₦500m and ₦700m respectively; six brand new cars to be replaced every three years!; three hundred percent (300%) of the salary as furniture allowance every two years!; around ₦2.5 million monthly salary, termed “pension”; free medical bill for him and his family; and close to 60% of the salary paid monthly for maintenance, entertainment, and utility. With little variations, these apply to other states in the country. Even if we should accept the term pension, what of those in active service? Should they receive pension? Even if they need six cars, why should a new car be changed after three years? Off recent, they tricked us by claiming that they reduced their salaries but we know that the bulk of their earnings come from allowances. Just as we have above, 300% of the salary as furniture allowance every two years for ex-governors. One wonders what that of the serving governors will be. What justifies changing furniture every two years where as those you are working for cannot afford even two square meal? What justifies the Wardrobe allowance of just a senator being more than the overall salary of a Professor or a level 13 Civil Servant? Rising to the position of even a Local Government Chairmen automatically guarantees enough income to send their children to schools and for medical treatment abroad. Why then should they boarder about the threat of teachers or medical doctors going on an indefinite strike, or the dilapidated nature of our government universities and hospitals?

Why can’t we tell ourselves the truth for once? If all these double counting can be removed or at least reduced to a bearable minimum, with the savings and all other frivolous spending as found in the first presented 2017 budget channelled to wage payment, the question of affordability and sustainability of the proposed minimum wage will be a thing of the past.

 

Written by: 

Dr. Nathaniel Urama
Dr. Nathaniel Emeka Urama

Director of Applied Economics Research, African Heritage Institution, Enugu, and Senior Lecturer, Department of Economics, University of   Nigeria, Nsukka.


African Heritage Institution

54 Nza Street Independence Layout Enugu

by phone: +234 706 209 3690, 809 347 0589

by e-mail: info@afriheritage.org

 

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