The issue of national minimum wage has always been difficult to deal with. Available evidence indicates that left-leaning political parties, aka Progressives, are usually pro-labour while right-leaning parties, aka Conservatives, are pro-business. As to be expected, the possibility of hikes in a national minimum wage resonates more with the former than the latter.
Several germane arguments can be deduced in support of an elastic increase in the minimum wage. It is imperative for workers to earn a living wage. Higher disposable incomes in turn reflect in higher consumer purchases that hopefully grow the economy. Higher personal incomes generally mean higher income tax revenues for the government and more funds for infrastructural development.
Given the extended family system, a higher minimum wage is seen as one significant way to lift many people out of grinding poverty and give a fillip to the growth and development of micro-economic business activities. It represents to effectively redistribute income in a country where, for example, a senator takes home about N11m in monthly allowances alone, enough to cover the new minimum wage bill of more than 360 workers!
But, there are equally compelling reasons for treading very cautiously on the topic.The first major challenge is the inability of a majority of employers to pay the new wage. This is especially true of the public sector since most major actors in the private sector can pass the increased cost of sale to their customers by raising their selling prices. Most state governments are owing their civil servants outlandish backlogs of wages. It is therefore highly irrational to expect such states that couldn’t pay their workers when the national monthly minimum wage was N18,000 to now seamlessly pay N27,000!
It did not come as a surprise when the Nigerian Governors’ Forum announced that the states simply cannot pay the new national minimum wage and that any attempt to compel payment of the amount would force them into bankruptcy. The governors, however, gave two near impossible conditions for compliance: that the current revenue sharing formula should be amended to give more funds to the states from the Consolidated Federation Account; and that the leadership of Organised Labour should accede to the downsizing of the workforce on the public payroll.
It is fair to liken the conditions to the Devil and the deep blue sea. The Federal Government is not likely to countenance any reduction in its statutory allocation without passing on the responsibility for a significant number of items from the Exclusive and Concurrent Legislative Lists to the exclusivity of states. This would then mean that despite any realistic tinkering of the revenue sharing formula, the states would still be unable to carry their statutory baggage unless they become more creative in Internal Revenue Generation and plug all leakages and wastage – a Herculean task given the monster called corruption that has seized the polity in a vice-like grip and the seeming reluctance and hypocrisy of Nigerians to squarely address it.
On the other hand, Organised Labour loudly and angrily fired back that not a single public sector worker should be laid off and that it would mobilise its members to vote in next month’s elections against any governorship candidate who does not publicly pledge to pay the new national minimum wage. But it remains to be seen whether Organised Labour realistically has the critical mass of registered voters to make good its bluster.
Then again, in a nation like Nigeria with very high marginal propensities to import and consume, the foreign suppliers of manufactured goods and raw materials would be the major beneficiaries of any increase in customers’ purchasing power, not domestic manufacturers. So much so then for stimulating an economy in recession by way of wage increase.
Then there is the Domino effect hikes in national minimum wage have had on the economy as other stakeholders automatically and arbitrarily raise the prices of their own goods and services. This fosters a steep rise in the general price level, aka inflation, and workers generally end up being worse-off for the wage increase!
Worse still, Nigerian workers and their leaders are notoriously afflicted by a chronic case of money illusion i.e. they suffer from a tendency to think of wages in nominal (absolute), rather than real (purchasing power), terms; and this is said to be consistent with the “Myopic Loss Aversion Theory.” Money illusion is a term coined by American neoclassical economist, Irving Fisher, and popularised by legendary British economist, Nobel laureate and father of Keynesian economics, Lord John Maynard Keynes; but not without stout resistance from the Milton Friedman-led school of monetary economists. Suffice to note the inverse correlation between inflation and unemployment demonstrated by the “Phillips Curve” still remains sacrosanct and Organised Labour is well-advised to take it into consideration when demanding astronomical wage increases.
What then is to be done? First and foremost, we must recognise that regardless of the political ideology or idiosyncrasy of the government in power, the concept of national minimum in any country is heavily intertwined with high-wire politicking.
The Federal Government recently set up a Presidential Committee to take another look at the national minimum wage from all sides of the divide. But there is very little the committee can do in the prevailing overcharged atmosphere other than to recommend a payment sequencing or compliance by instalment. I am fully persuaded that the government would continue to turn and squirm until after the taking of the oath of office on May 29 due to enormous pressure being brought to bear on the Presidency by the state governors, coupled with the fact that the CBN top management is determined to keep money supply under check in an election year as the main thrust for controlling inflation.
In concluding, I have a few words of advice for Organised Labour if current and future agitations for hikes in national minimum are to be shorn of their bad-tempered and bad-faith politricks and bluster. First, Organised Labour must shift its focus from nominal minimum national wage to one that’s indexed to inflation. A nominal wage increase doesn’t really mean much if it is significantly eroded by a spike in inflation. Furthermore, Organised Labour and like-minded Civil Society Organisations must embark on a robust advocacy to reduce waste in governance. The Revenue Mobilisation, Allocation & Fiscal Commission must be robustly engaged to drastically shrink the humongous pay package of elected officials, especially the legislators and councilors, in line with national realities.
Legislators should work on a part-time basis and we should dump the Presidential system of government for the parliamentary model of the First Republic.The opaque security votes allotted to state governors and the President should also be scrapped. The savings should be deposited in a special account from which the difference between the old and the N27,000 being proposed as the new national minimum wage can be funded.
It is imperative that workers develop an improved work ethic. Employers would more readily agree to pay ever-increasing wages as long as workers’ productivity matches or exceeds the rate of increase.
Okoye is an Abuja-based economic/microfinance analyst
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