Report: Raising Minimum Wage May Enhance Nigeria’s Economic Recovery


Obinna Chima
Increasing workers’ minimum wage might be the last dose of policy prescriptions needed to experience a full economic recovery, the Financial Derivatives Company Limited (FDC) has stated.

The FDC stated this in its latest economic bulletin for May.
According to the Lagos-based investment and research firm, a common thread to the introduction and increase of a minimum wage across the globe was the desire to compensate for a loss of purchasing power due to inflation.

It stated that Nigeria shares this objective, fuelled by frequent requests from labour unions for an upward review, adding that the outcry, during the past two years was a potential trigger of social unrest.

The Federal Executive Council (FEC) recently approved a 29-member committee to deliberate on the merits of an upward review in minimum wage. The minimum wage presently is N18, 000 a month. At the time of its implementation in 2011 this was equivalent to $140/month.
Today, the equivalent in dollars is around $45-$60.

“At the current rate, civil servants are living on $1.5 – $2 per day. This is barely above the international poverty line mark of $1.90 a day. Increasing the minimum wage could see an uptick in the daily rate to as high as $5; while still very low, it nevertheless is 150 per cent higher than current levels.

“Inflation and the weak value of the naira have eroded the purchasing power of the average Nigerian. In the last two years, a number of adjustments have been made to general price levels which have contributed to this erosion.

“The prices of basic necessities, such as rice, bread or a bottle of CWAY water, have increased significantly. It is obvious to see that N18, 000 is barely enough to cover basic necessities,” it added.

The removal of fuel subsidy in 2016 saw the price of petrol increase by 67 per cent. Similarly, diesel and kerosene prices also increased significantly. The rise in the cost of power was a result of the decision to adopt a cost reflective tariff.
Food prices have increased by 19.3 per cent in the past year.

“These developments support a minimum wage review. In addition to providing a higher standard of living, proponents for an increase in the minimum wage believe it will dampen recessionary pressures with a subsequent increase in consumption levels.

“It could stimulate economic activity as low-wage workers spend their additional earnings, raising consumer demand and creating job growth. This was the case in the US when the government decided to introduce a federal minimum wage during the Great Depression.

“It’s almost impossible to see why anyone would not support an increase in Nigeria’s minimum wage. Although on route to a recovery, the Nigerian economy is still in a recession,” analysts at FDC argued.

However, on the flip side, the report stated that one of the most common unintended consequences of an increase in the minimum wage was an increase in unemployment. It based this on the fact that majority of states in Nigeria can barely afford to pay pensions let alone bear the additional costs associated with increasing the minimum wage.

Therefore, it stressed that an increase in labour costs without a proportional increase in internally generated revenue may result in staff layoffs to cover the costs. This consequence, it noted offsets the expectation of an increase in consumption levels because, while those working will receive more, those not working will continue to reduce their level of consumption.

“If the minimum wage is reviewed upward, public servants at the state level will probably go through another period of salary arrears because states will not have the resources to pay for the increase in salary levels.”

According to a budgiT report, about half of the states were able to meet their monthly obligations between January and July 2015. Only three states were able to meet their average monthly commitments between January and July 2016.