Minimum Wage: Between Economic Reality and Uncurbed Emotions

Emmanuel Addeh writes that although every Nigerian worker is entitled to a living wage, the principles of fairness and reasonableness in negotiations must not be sacrificed on the altar of emotions.

A Background

To be sure, the agitation by Nigerian workers for wage increment is not recent. Indeed, one historical review of wage determination traces it to the first wage commission of 1934, better known as the Hunt committee.

While the periodic call for higher wages by organised labour is a global phenomenon, the way and manner each country’s workforce decides to go about pushing for their rights also matter.

Five years ago, the Muhammadu Buhari administration passed the National Minimum Wage Act of 2019, which laid the legal framework for periodic reviews of the minimum wage every five years.

That deal between the government and organised labour set the minimum wage at N30,000, which at the time was a substantial increase from the previous N18,000 established in 2011.

With significant shifts in major economic indices, especially rising inflation, occasioned by ongoing economic reforms, organised labour represented by the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) began fresh calls for a review of the minimum wage.

So, on January 30, 2024, President Bola Tinubu appointed a 37-member panel to recommend a new national minimum wage for the country.  Members of the panel were made up of persons from the federal and state governments, private sector as well as organised labour, including governors, ministers, labour leaders, among others.

Since then, negotiations have been on, with organised labour first proposing over N600,000 and pushing ahead with the logic that the current minimum wage of N30,000 had since been eroded by inflation.

Economics of Wage Increase

There is no doubt that the current economic reforms, including the removal of subsidy, the ‘floating’ of the Naira and recently the hike in electricity tariff for Band ‘A’ consumers, especially as relating to business organisations, have impacted the general prices of goods and services.

Generally, wage increases result in higher salaries, allowances, social contributions, and benefits, contributing to the total personnel costs. For instance, personnel costs steadily increased over the five years from 2018 to 2022, rising from approximately N1.4 trillion in 2018 to about N1.8 trillion in 2022.

In a situation where an increase in wages does not match productivity, the impact of a raise could even be more problematic for the general wellbeing of the worker and the country than the challenge it was meant to solve.

Many Nigerians have called for caution on the part of the organised labour so as not to allow the entire building  called Nigeria fall on everybody living under it. That is what the eternal argument by organised labour that if those at the top echelon of government are being ostentatious, then labour will join the fray portrays .

While wage increase, especially the one done reasonably, rather than the spur of emotions, may have its positive economic impacts, including workers’ motivation, doing so without considering the economic realities, is likely to take its toll on the entire economy, doing more harm than good.

Inflation will worsen, Small and Medium-scale Businesses (SMEs), which cannot afford the new threshold will fold up,  the cost of doing business will skyrocket and this will come with inevitable job cuts. So, there’s a need for a delicate balance.

Already, many of the companies are struggling with paying the existing minimum wage, given the rise in the cost of doing business. Interest on loans is over 40 per cent. In addition, the cost of raw materials has skyrocketed.

By the way, experts have argued that productivity should be one of the  bases for wage increases. Mention this and Nigerian civil servants will simply exit the chat room.

There have been arguments as to whether wage increase will necessarily lead to a higher inflation rate, but then Nigerians do not need to look at the experiences of other nations.  When government accepted the Udoji commission in 1974, price levels skyrocketed. And that was even before government began its implementation.

OPS Agrees on N60,000 Wage

The Organised Private Sector, led by Nigeria Employees Consultative Association (NECA), has in the course of negotiations agreed to N60,000, a 100 per cent rise in wages, after due consultation with many sectoral/industrial employers’ associations.

It has also made it clear that productivity, competence, qualification and other indices should play a critical role in determining wage or salary increase.

If everyone agrees that the private sector is the biggest employer of labour, then that is enough to end the argument about an unsustainable wage increase. NECA’s Director General, Adewale-Smatt Oyerinde, warned that insisting on an unrealistic minimum wage could collapse organised businesses, causing massive job losses.

He urged representatives of organised labour to embrace the government’s proposed new minimum wage or be prepared to serve as the undertaker of  businesses by insisting on N250, 000 to N400,000 as minimum wage.

The NECA DG said: “The circumstances and situation of the organised businesses have not improved significantly to accommodate the 90 (now 100 per cent) per cent increase the OPS offered.”

Oyerinde urged the wage negotiation committee to prioritise job creation and job security in view of the prevailing worrisome and increasing rate of unemployment in Nigeria. He added that productivity should be the key driver of higher wages.

“With organised businesses declaring over N1 trillion in combined losses and many shutting down their businesses for different reasons, while others are relocating to other climes, it will be practically impossible to guarantee enterprise sustainability and job security with the current demands of organised labour,” he added.

Also, the Director General of the Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, has thrown the weight of the organisation behind the federal government on the about N60,000 minimum wage proposal, which was rejected by the labour unions.

Ajayi-Kadir explained that the economic environment has been challenging for both labour and private businesses, making it impossible for them to pay the wage the labour union is demanding.

He said the organised private sector concurred with the federal government that the new minimum wage should be N60,000.

The MAN president explained that the ongoing negotiations between the government and the private sector with labour are not about a living wage, but a minimum wage—the lowest amount that can be paid to any worker in the country.

FG’s Non-monetary Incentives

Government has argued that beyond the N62,000.00 per month it is offering, there are non-monetary incentives which include a recent N35,000 wage award for all treasury-paid federal workers, N100 billion naira for the procurement of CNG-fuelled busses and CNG conversion kits.

Also, it listed N125-billion conditional grant and financial inclusion to small and medium companies, N25,000 each to be shared to 15 million households for three months, N185 billion palliatives (loans to states) to cushion the effects of fuel subsidy removal, N200 billion  to support the cultivation of hectares of land to boost food production.

Besides, it enumerated the N75 billion naira to strengthen the manufacturing sector, student loans for higher education, release of 42,000 metric tons of grains from strategic reserves as well as purchase and onward distribution of 60,000 metric tons of rice from the rice millers association.

In addition, government highlighted the recent salary increase of 25 to 35 per cent on all consolidated salary structures for federal workers, 90 per cent subsidy on health costs for federal civil servants registered on National Health Insurance Scheme (NHIS) as well as the light rail commissioned in Abuja to relieve transportation cost till the end of the year.

Government also reiterated the freedom of civil servants to engage in agriculture, stressing that the federal government had further approved the inclusion of ICT services for alternate sources of income.

 Views from Home

One of Nigeria’s most renowned economists, Biodun Adedipe, urged the organised labour to put into consideration the economic implications of the 494,000, now N250,000 new minimum wage demand, labelling it as unproductive and unrealistic.

Speaking with Arise News Channel, he said: “What the Labour is asking is unproductive and unrealistic. It doesn’t pay any of the parties involved, that is the government, private sector and even the labour that is supposed to be a beneficiary of whatever any of these actors or agents do on a daily basis.

“If we look at what the labour is asking for, which is N494,000 as minimum, if you work out the numbers with 1.2 million workers, that gives you a figure of about N5.48 million per person, when you multiply by 1.2 million people, you are looking at an annual figure of about N7.114 trillion. But that is basic and when you factor in the allowances, you are looking at N9.5 trillion,” he said.

Adedipe also warned of potential job losses and economic instability akin to the 1994-1995 period. He therefore urged a balanced approach to the wage negotiations to mitigate adverse economic effects.

“Allowances are heavier in the private sector, in the public sector, allowances are roughly 30 per cent of the basic which accounts for the difference between N7.1 trillion and N9.5 trillion as the government said, which means the issue of affordability becomes very heavy when you consider it,” he stressed.

He argued that there was a need to consider the implications of pushing the figure so high.

Besides, a former Director General of the Voice of Nigeria (VON), Osita Okechukwu, while acknowledging that workers are currently facing some hardship, cautioned against crashing the economy.

“I’m saying that if we push more cash into the economy, we are told in primary economics lessons that if much cash is chasing few goods, it will lead to low purchasing power parity. And the same workers that labour is advocating would get poorer, and there will be an increase in hunger.

“We already have a stagflation, an economy that is stagnant, an economy ravaged by inflation. And then you are advocating for N200,000 to 400,000. When you have that, it will lead to a cost-pull to the same stagnant inflation.

“So the wealth of the labourers, or the wages of the labourers that is increased, will not be meaningful to the Nigerian workers. And I’m saying that I’ve looked into what the federal government is offering. And the private sector agreed to that, that they said is N60,000 as minimum wage

“And they also said they are working diligently to provide transportation. And they are also trying to push more money into agriculture. They are also trying to push more money into medium and small-scale enterprises. And they are also maintaining some of the freebies they are giving to alleviate the suffering of the people,” he argued.

Status of Negotiations

At the weekend, the Tripartite Committee on Minimum Wage, stated that having critically examined the issue using all necessary parameters, and having applied the social, economic and political considerations, as well as relevant International Labour Congress (ILO) Conventions and international best practices, it agreed that there was the need for an upward review of the present national minimum wage.

In view of the above, it invited the president to note that the committee adopted the motion proposing N62,000  per month as a new national minimum wage, having considered all other factors.

“The committee hereby presents N62,000 per month as agreed by government and organised private sector with policy incentives and other conditions made by states and the organised private sector,” it noted.

However, it stressed that organised labour was insisting on N250,000.00 per month as new national minimum wage for consideration. As negotiations continue, it is only right that labour presents its case in alignment with Nigeria’s economic realities.