Before you increase the minimum wage

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