Minimum wage, maximum problem



By Mike Adeyemi

There are conflicting views on whether raising the minimum wage increases inflation. Tied to this is the question of what effect a higher minimum wage has on employment because historically, high unemployment goes hand-in-hand with high inflation.

There can never be any question about the justification for a wage increase in Nigeria. While wages have remained constant for some time, the value of the naira has depreciated with concomitant rises in prices of goods and services. It is therefore perfectly understandable that workers should agitate for wage increase.

What is debatable is the timing of the demand as well as the possibility that a wage increase, rather than improve on the fortunes of workers, could indeed worsen their situation. Besides, wage movements are not static; any wage increase will have far-reaching long term implications as it impacts on other areas such as taxes and pensions.

From their initial demand of a minimum monthly salary of N65, 000, (as against the present minimum wage of N18, 000), the Nigeria Labour Congress (NLC) and the United Labour Congress (ULC), have descended to N30, 000 which is the new bone of contention.

The Federal Government has reportedly offered N24, 500 even as the Special Adviser to the President on Media and Publicity, Femi Adesina has pointedly warned that the wage increase would be difficult to implement. It is also no longer news that state governors have offered N22, 400 which the Federal Government and organised labour reportedly turned down.

While raising the minimum wage would help stimulate the economy owing to the increased spending power of workers receiving higher wages, too high of a government mandated minimum wage would have a deadly effect on employment.

To start with, everybody know that many state governments are reeling under heavy wage burdens with many being unable to pay the present N18, 000. At the last count, only about nine states are able to pay the minimum wage of N18, 000 regularly. The number of defaulting states would have been far higher but for the bailout funds from the Federal Government to the states.

 One wonders what gives labour the confidence that the defaulting state governments would conjure some magic to begin to live up to their responsibilities. If they cannot pay N18, 000, it is hard to understand how labour expects them to pay N30, 000. This demand looks like a clear invitation to chaos.

Of course, the logical consequence will be the return to retrenchment of workers, embargoes on employment and promotions especially in the public services of the states and the Federal Government. In fact the organised private sector will be off without excuse.

If the ramifications of a wage increase were to be limited to the public sector, perhaps it would have been less invidious. Unfortunately, any increase triggers agitation for more wages outside the civil service.

 Landlords and other service providers have not found a way of distinguishing between public servants and other tenants such as private sector workers or self-employed people who are managing to eke a living from their environment. The implication is that labour, by its uncompromising posture, may throw the nation into a bigger crisis that it possibly could anticipate.

A high minimum wage would not only kill existing jobs but also results in closing a substantial number of small businesses , from 15% to 20 %. In theory, raising the minimum wage forces business owners to raise the prices of their goods or services, thereby spurring inflation.

Let’s get it straight. The NLC will be failing in its duty if it does not engage employers in a manner that enhances the welfare of its members. What is debatable is whether a wage increase is the only avenue for achieving that noble objective. By the way, a worker’s salary is only useful to the extent that it can procure needed goods and services with provision for the rainy day. I will admit that today’s wage cannot satisfy immediate needs let alone provide for savings.

But has labour explored or exploring other avenues that could enhance workers’ welfare? To some extent, in the affirmed; that is, if one factors in the various efforts at providing houses for workers. Yet, again, one is tempted to ask, how many workers are able to benefit from these housing programmes?

The pathology saga of playing with workers’ wages has gone on for far too long that there is a sense in which labour could become an accessory to the unfortunate plight of workers through acquiescence in malfeasance, selective amnesia or outright failure of strategy. Over time, what obtains is that labour would hold the Federal Government by the jugular over workers’ salaries.

One would often wonder why labour cannot shut down those states governments that are notorious for denying workers their emoluments, to the extent of callously compelling them to indulge in the illegality of signing away portions of their salaries and pensions. The most recent case of the misuse of the bailout fund, by some states, reeks of the most callous display of inhumanity by those in whose care the workers have been entrusted.

Again, one would expect labour not simply to paralyze such state governments but to ensure that nobody associated with them ever gets elected or reelected. It should be emphasized that the Federal Government is not the culprit here. Labour should devise strategies to make their state councils not only alive but also accountable to workers.

If governments are held accountable as advocated above, the need for higher wages could become irrelevant because governments that are responsive to the needs of their people will definitely lay the infrastructure for development.

For instance, if state governments provide good roads, hospitals and schools and assist small holder transport companies with soft loans, the transportation mirage that erodes the income of workers will abate. If contiguous state governments develop light rail networks, such as the one in Abuja, transportation cost will be drastically reduced.

 If state governments provide free education (with free books as was done by the administration of Alhaji Lateef Jakande in Lagos State between 1979 and 1983), the financial burden of educating their children and wards will be so drastically mitigated that agitation for wages could decline. But that is not happening. Instead, for many a state government, the difference between public funds and their private pockets is only a function of the type of dress they  wear.

In actual practice, however, it is not so simple since wages are only one part of the cost of a product or service paid for by consumers. A higher minimum wage can be offset by workers or trimming down a company’s manpower.

Suffice it to say, raising the minimum wage to an excessively high rate would exert inflationary pressure on the economy, but increase it to keep pace with inflation would only have a minimal effect.

Those in favour of increasing the minimum wage argue that such an increase lifts people out of poverty, helps low-income families make ends meet and narrow the  gap between the rich and the poor. That arguments is underscored by the exorbitant salaries earned by politicians and other corporate titans, which are also the same people generally arguing against an increase in the minimum wage.

The idea of an increase also has a strong populist appeal, particularly in a nation where discussions about social class, when they are held at all, are nearly always framed in terms of the rich versus the poor.

On the other sides of the discussion is the argument that increasing the minimum wage hurts small businesses, squeeze profit margins, leads to inflation, encourages employers to downsize their staff and increases the cost of goods to consumer.

Economically speaking, the theory of supply and demand suggests that the composition of an artificial value on wages that is higher than the value that would be dictated in a free market system creates an inefficient market and leads to unemployment.

The inefficiency occurs when there are a greater number of workers that want the higher paying jobs than there are employers willing to pay the higher wages.

From mathematical and logical angle, increasing the minimum wage does not lift anyone out of poverty because; the prior minimum wage already paid more than the official poverty rate.

The number would seem to put the minimum wages arguments to rest, but only because of the misaligned focus on the phrase “minimum wage.”When referring to that phrase, many people actually seem to be seeking a living wage, which is generally defined as the amount required to raise a family on a single wage earner’s salary.

Is there a solution to the minimum wage issue? Statistics can be gathered to support both sides of the argument. While there are no easy answers, a good first step is to frame the debates in realistic terms.

Referring to the minimum wage as a wage designed to support a family confuses the whole issue. Families need a living wage, not a minimum wage.

On the core issue of minimum wage itself, political wrangling is unlikely to result in a real solution. A more practical solution is to join the workforce at the low end of the wage scale, build your skills, get an education and move up the ladder to a better paying job just as members of the workforce have done for generations.


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