Why the Government May Be Wrong on The New ‘Minimum’ Wage by Jideofor Adibe

The recent 63.7 percent increase in the national minimum wage, from N11,000 to N17,000 (or is it N18,000?) has generally been seen as good news for workers – despite the increase coming short of the N52,000 originally demanded by the Nigerian Labour Congress.  The pay rise, effective from August 2010, and graduated across the levels, will make the highest paid civil servant on the highest grade level (i.e. level 17, step 9) earn N453, 444, 67 per month, or N5, 444,336 per year.  While this is certainly a victory for the relevant labour leaders – labour leaders tend to measure the success of their tenure by the number and quantum of concessions they are able to extract from employers – it is not clear that Nigerian workers will benefit as much as the nominal salary increases suggest. The new ‘minimum’ wage in fact raises a number of issues:

One, is that the entire exercise appears to be clouded in ambiguities. It is for instance unclear whether what was effected was an increase in ‘minimum wage’ as widely reported in the press or a relativity adjustment as argued by Comrade Philips Agbonkonkon, General Secretary of Amalgamated Union of Public Corporations, Civil Service, Technical and Recreational Services Employees (AUPCTRE) who said the new deal was meant to bridge a wide gap in pay differentials among staff of various sectors of the civil service. He said the pay rise “is different from the increase in wage that the Nigerian Labour Congress (NLC), Trade Union Congress (TUC) and Nigerian Employers’ Consultative Association (NECA) are working on” (Nigerian Compass of July 12, 2010). 

The new minimum wage is also silent on how this affects members of the NYSC, whose current allowances are below this minimum threshold  – just as there are conflicting reports on whether it was increased to N17, 000 or N18, 000.  It was equally not made binding on the private sector employers – as is often the practice with minimum wage legislations. Similarly, there is a lack of clarity on what really spurred the President to push for the new wage hike:  while the President’s Facebook claims he took the steps following his survey of the prices of basic goods, which made him realise the difficulties Nigerians are going through, other reports say it was a fulfilment of the promise he made to Nigerian workers on May 1, 2010, when, as Acting President, he persuaded them to suspend a five-day working strike over pay increase.

Two, there are sufficient grounds to be suspicious of a wage increase on the eve of an election year, especially when the President’s body language appears to indicate that he will contest the election next year. Critics could interpret this as an attempt to bribe the workers. Additionally, cynics may be looking out for the possibility of the increases being sweeteners to the labour leaders preparatory to the introduction of harsher economic measures, especially as the government has been flying a kite about the need for further increases in the prices of petroleum products. Could the new minimum wage be a pre-emptive strike in which the so-called de-subsidisation of petroleum products will be accelerated after next year’s elections? 

Three, it is debatable whether the decision to increase wages during a strangulating recession that is accompanied by unacceptably high levels of unemployment, is a wise economic move. At a time when most governments in the world are offering economic stimulus packages to help save workers’ jobs and get the unemployed back to work, not much was said about how the measure will affect job security or job creation. In the US for instance, a study by the Ball State University’s Centre for Business and Economic Research (CBER) suggests that the increase in the minimum wage between 2007 and 2009 ((1.6% in 2007, 12% in 2008 and 10.7% in 2009) from $5.15 in early 2007 to $7.25 in the summer of 2009, led to the elimination of some 550,000 jobs in the country. It was also thought to have contributed significantly to unemployment rate for the 16-24 year olds (the age bracket that often earns minimum wage) reaching a record 19.6 percent in April 2010, double the US national average – the worst since the 1980s, and possibly since the Great Depression. Summer jobs – a useful way for students to earn cash and job experience – virtually disappeared.

In the UK, the recent increase in the minimum wage was a conscious effort to strike a balance between helping low paid workers and their families and ensuring that the pay rise does not affect their job security or general employment prospects. Thus from October 1, 2010, the national minimum wage (adult rate) will rise from its current level of £5.80 per hour to £5.93 per hour, an increase of just 2.2 percent. The national minimum wage “youth development rate” (for workers aged 18 to 20) will concomitantly rise from £4.83 per hour to £4.92 (an increase of just 1.8 percent).

In Nigeria there are legitimate concerns that the 63% increase in the minimum wage (at one go) could give wrong signals to the market, leading to inflationary pressures that would undermine the expected benefits of the exercise. Wouldn’t it have been better if a substantial part of the new wage hike was offered as fringe benefits such as support to help low paid workers with school fees, retraining or medical bills?

Four, it may be tempting to speculate on the profile of Nigerian workers likely to benefit most by the new minimum wage and pose the question of how the increase is likely to affect their job security.  It is no news that most state governments struggle to meet their current wage bills, and some owe arrears of salaries. These states are now told they must implement the new minimum wage – without any hint of what will happen if those governments decide to embark on retrenchments to be able to afford the new pay. More importantly is that the announcement of the new ‘minimum’ wage ought to have been made simultaneously with a federally funded programme for job creation at both the federal and state levels – to forestall the announcement leading to a knee jerk freeze on hiring by employers. The government also ought to have clearly indicated where it expected funding for the new increase to come from. 

Five, the possible undertones that informed the minimum wage increase calls to mind our orientation towards ‘sharing’ as opposed to the ‘baking’ of the national cake – to increase its size. Not much has been heard about creative ways of increasing productivity, reducing the cost of governance and improving economic efficiency at a time key institutions like NNPC were said to have gone broke (though denied, but as they say, ‘no smoke without fire’). While any move to better the lot of Nigerian workers must be applauded, we should at the same time not lose sight of the real factors that have confined them as the wretched of the earth and the rest of us as the laughing stock of the world.

No one will dispute that our workers deserve decent wages that will guarantee social self-reproduction without recourse to moonlighting, bribery and corruption or primitive accumulation. I remain however unconvinced that increases in nominal wages under the current, consumption-oriented structure of the federation and poor infrastructure will be able to guarantee them just that.