By Ahmed Adamu, PhD
The last increase on the minimum wage was in 2011 during the
Goodluck Jonathan’s administration, when the then minimum wage of N7, 500 was
increased to N18, 000, and since then, the minimum wage has not been increased.
Seven years after, and after increasing inflation, it is justifiable to seek
for adjustment. However, before we consider increasing the minimum wage, we
have to understand the unique economic situation in Nigeria and the best
alternatives to the increase on the minimum wage. Instead of increasing the minimum
wage, there are better alternative measures that can help improve the wellbeing
of the people of Nigeria, and we will discuss these alternatives in this
article. Before then, we need to go through the background and some of the
effects of increasing the minimum wage.
How much should be the deserved minimum wage as at today? Going
back to 2011, the Consumer Price Index (CPI) was 110.84 and this year’s CPI is
266, adjusting the minimum wage for inflation within the seven years, the
minimum wage in Nigeria as at 2018 should be N43, 197.40. A public worker must
earn this amount to be able to have a wage of the same purchasing power as the
purchasing power of N18, 000 in 2011. In layman terms, a public worker
(receiving the minimum wage) would need to receive at least N43, 197.40 to be
able to buy the same provisions he used to buy in 2011 with N18, 000. Therefore,
the minimum wage of N18, 000 today is equivalent to N7, 500.45 in real value.
Most people would think it is generally good to put more
money in the hands of workers, not realizing that more money in the hands of
workers leads to increase in the prices of goods and services. “Inflation is
primarily caused by an increase in the money supply that outpaces economic growth”.
Once the money in circulation is growing at a rate higher than the economic
growth, the value for money will reduce. At the time when Nigeria is struggling
with two digits inflation rate (11.28%), and achieving steady reduction in the
inflation rate, increasing the minimum wage will put inflation rate back to
around 20%.
To maintain corporate profits after minimum wage increase,
employers must increase the prices they charge for the goods and services they
provide, which leads to inflation. Increasing the minimum wage is like
increasing the petrol price in terms of its correlation to inflation. Receiving
higher income but paying higher bills makes no impact. The dangerous thing in
Nigeria is that prices are fast at going up and sticky in going down, and
knowing that should make us do everything possible to avoid letting prices go
up.
Once the minimum wage is increased, the value for Nigerian
currency will reduce, as the goods and services affordable for each unit of
Naira will reduce. Similarly, a mere sentiment and perception of traders will
push the prices up. Once traders understood that workers have more money in
their hands, they wouldn’t hesitate to stretch the buyers’ purchasing income
through higher prices.
Increasing minimum wage can cause many people to lose their
jobs, as some companies will have to be forced to sack their employees to be
able to maintain normal profits. New companies will have to cut down the number
of the employees they intended to employ, and reducing the number of labourers
may affect the productivity of the individual companies, which reduces the
aggregate production within the economy, thereby reducing the country’s
economic growth rate. Investment in the country will reduce as prospective
investors will be discouraged seeing the increasing inflation and wage
increase.
At the time when we need to create enabling environment for
competitive economy, the best thing to do is to add value for the Naira by
attracting investment and competition in manufacturing and industrial sectors. Apart
from inflation and unemployment, increase on minimum wage increases the burden
on government, making it difficult to invest adequately on infrastructural and
development projects, which are desperately needed for investment and
competitive economy.
With politicians investing heavily on campaigns and
maintaining luxuries, extravagance and over-sized cabinet, it will be difficult
for most governments to pay the increased salary and still have balance to do
projects for the poor. Some governors still find it difficult to pay workers’
salaries, some take months before they pay salaries. Most of the states rely
heavily on federal allocation to be able to pay government workers, and while
the federal allocation may not proportionately increase, the salary budget will
increase by at least 25% if the minimum wage is increased. This will mean cuts
on development budgets like health, education, water and transport to fund the
wage increment, and it will make life difficult for most of the poor. While
trying to serve less than 5% of the population, majority will have pay for it.
With the minimum wage increase, the attraction to government
jobs will increase at the cost of self-employment, creativity and productivity.
The private sector should be more attractive to the younger and productive
population of the country by making the prospects in the private sector more
lucrative than the public sector. By increasing the minimum wage, the reverse
will be the case, as a profit motivated private enterprises will find it
difficult to optimize profit and employment while still paying higher diesel
price, electricity tariff, taxes, and still providing for its own security and
water supply.
The best alternatives: instead of clamoring for wage increase,
the labour unions should have campaigned for measures that will add value to
the existing wage, and advocate for adequate provision of basic life
requirements and reduction of unnecessary government spending. It will be
better if government can cut the excessive spending and allowances it pays to
political leaders like senators, legislators, governors, ministers, SAs, SSAs,
political leaders, and cut the unnecessary gifts, travels and events, and use
the saving for adequate provision of basic requirements like education,
healthcare, security, water, transport, and electricity. The reason why the
N18, 000 will not be sufficient and even the proposed new minimum wage will not
be sufficient is because workers have to provide these basic requirements for themselves.
Workers are now their own government, so, even N50, 000 will not be enough for
the minimum wage earner without these basic provisions.
To add value for Naira and to reduce the inflation, government
should look for ways to restore petroleum subsidy. Petroleum subsidy is like
magic, even if you earn N18, 000 minimum wage, with petroleum subsidy, life
will be much better than increasing the minimum wage. The subsidy will make
goods and services cheaper, make investment easier and increase the employment
rate. With the additional amount of money that would have been used for the payment
of additional wage, government can use that to pay for petroleum subsidy so
that not only the government workers will benefit but everyone. With further cuts
in government excessive spending, the government can save enough to pay for the
petroleum subsidy.
Another measure that will make government workers contented with
the N18, 000 minimum wage is to allow and encourage them to engage in other
enterprises. The existing code of conduct act is anti-economic growth for
prohibiting government workers from venturing into enterprises, which makes
them redundant and live below their economic potentials. Workers should be
inspired and coached on how to become effective entrepreneurs. They should be
given the space to make the right balance between government work and their business
enterprises. No matter how much the minimum wage will be, it will still not be enough,
only creative economic ventures can sustain workers. Relying on salary alone
will not serve them, it will only tempt them into corruption.
Instead of paying for the additional wage, government
workers should be offered soft loans to set up economic ventures, so that they
will not rely on their wages alone. With this opportunity, you will see some of
them resigning from the government work, because they will be more attached to
their businesses. Like the popular saying that says, if you give a man fish,
you feed him for a day, but if you teach him how to fish, you feed him for lifetime.
So, let us teach the government workers how to fish, instead of giving them
more fish.
Finally, the workers that really deserve increase in their
wage are the small-skilled labourers, craftsmen and primary school teachers. The
small-skilled labour force should be organized and their wages standardized. These
are people who use their skills and sweats to earn every Naira, and there are
more of these small-skilled labourers than the government workers. So, the
small-skilled labour force should be professionalized, and supported to organize
their unions to protect their own interests and agitate for their own deserved
wages.
DR AHMED ADAMU
Petroleum Economist,
Leadership and Development Expert,
First-Ever Global President of Commonwealth Youth Council,
University Lecturer (Economics),
08034458189, 08188949144, ahmadadamu1@gmail.com
Leadership and Development Expert,
First-Ever Global President of Commonwealth Youth Council,
University Lecturer (Economics),
08034458189, 08188949144, ahmadadamu1@gmail.com
