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Pyrrhic victory of any rise in minimum wage – Henry Boyo

PRESIDENT Muhammadu Buhari, on Monday 27th November 2017, inaugurated a 30 member tripartite National Minimum Wage Committee, to negotiate a new minimum wage. The Committee comprises six serving State Governors and other members from both the public and private sectors, as well as leaders of organized labour.

minimum wage

The President conceded, at the occasion, that the current (N18, 000) minimum wage has since expired; Buhari, also confirmed that on completion of the work of the Committee, an executive bill would be sent to the National Assembly, for “scrutiny, before being passed into law”.

Hereafter, the impact of any significant increase in the present minimum wage, on some sectors of the economy will be examined in an interrogative format to facilitate a clearer picture of the unfolding dilemma. Please read on: The present N18, 000 minimum wage presently buys less than 50% of its 2011 value, so would N36, 000 minimum wage restore the purchasing power lost to inflation since then?

Indeed N18,000 which was well over $100 (over $3/day) in 2011, has since depreciated to $50 or US$1-50/day); so although, N36,000 may seemingly restore parity to the purchasing power of the 2011 minimum wage,  nonetheless, N36, 000 is still short of Labour’s demand for N56, 000. Ultimately, however, the Tripartite Committee might reach a consensus, that is just above N36, 000/month, if labour refuses to accept anything below this amount.

What would be the impact of N36, 000 as minimum wage on workers?

Initially, there would be jubilation, but such celebration may be short-lived, as the sudden increase in nominal salaries, will make more money available to quickly expand consumer demand and drive higher retail prices for most goods and services. Over time, however, the N36, 000 minimum wage will also depreciate, if the Naira rate remains under pressure, particularly if petrol price becomes market determined (around $1/litre instead of the present below $0-50/litre).

Regrettably, the plight of retired civil servants and pensioners may not also be accommodated by any increase in minimum wage, as there is presently no arrangement for the augmentation of pensioners’ incomes, which have clearly been savagely ravaged by inflation over time; consequently, increasingly more pensioners will sadly, become economically challenged elder citizens until death!

What would be the impact of N36, 000 minimum wage on government budgets?

Indeed, with the notable exceptions of Lagos and Ogun States, recurrent expenditure, which comprises, mainly salaries and administrative expenses still consume about 70% of annual budgets; regrettably, Federal budgets also have the same ratio of allocations, which invariably leave less than 30% for socially rewarding investment on more vital capital and social infrastructure.

Instructively, a 100% increase in wages across board, will expectedly double and raise recurrent expenditure well beyond 70% of total spending in most states, including the budgets of federal establishments. Consequently, the presently decried paltry Capital votes for infrastructure, may become further reduced, and deepen our plight for better educational and health institutions, with safer transportation networks, and adequate power infrastructure, which will more successfully drive Nigeria’s economy towards inclusive prosperity.

It is no secret that most states owe several months’ arrears of salaries to their workers, so, how will such states fare if N36, 000 is adopted as minimum wage?

Well, statutory allocations and the presently modest, internally generated revenues have never been adequate to run the affairs of most states; ultimately, State governments may be compelled to increase their debt burden, in order to fund salaries and other recurrent expenses. Clearly, it is  socially suicidal to spend funds borrowed with almost 20% interest, on just salaries and other such consumables, which add little value to mass social welfare; besides, the burden of steady increase in accumulated unserviceable debts, will invariably, unfortunately, cripple succeeding governments and generations of Nigerians yet unborn.

Ultimately, State governments, may also, unwisely become apostles of foreign loan accumulation, in the belief that such loans optically cost less; however, in the long term, it may become very troublesome to service or repay such foreign loans, if Naira exchange rate suffers further depreciation, in such event, the huge allocations to debt service may become suggestive of irresponsible governance of people and resources.

In view of the modest incomes of states, isn’t it more realistic for states to determine their own minimum wage in line with their individual capacity?

Yes, this should be the rule in truly Federating states, where State administrations do not depend on a federally controlled central purse for monthly allocations to survive.

Nonetheless, as indicated in President Buhari’s speech, to the wages Committee, “the subject of a national minimum wage for the federation is within the Exclusive Legislative list of the 1999 constitution of the Federal Republic of Nigeria (amended).

What would be the impact of N36, 000 minimum wage on the Private Sector?

Well most companies in the organized private sector, already probably pay around N30, 000 minimum wage; consequently, N36, 000 will cause additional irritation to the existing burden of already high cost of borrowings and very expensive self provision of power, in a market which is characterized by weak consumer demand driven by double digit inflation rates for several years.

Notably, however, the wage structure in the informal, small and micro enterprises subsector is seemingly more flexible and may not respond positively to any law which increases minimum wage to N36, 000. Indeed, the labour force, employed even by road sweeping government contractors in some favoured states, still receive well below the present N18, 000 minimum wage.

Ultimately, the net effect of N36, 000 minimum wage will be spiraling inflation, which will regrettably, significantly reduce consumer spending, and discourage domestic production to ultimately fuel an already combustible unemployment rate, with unsavory and horrendous social and economic consequences.

So if increasing the minimum wage is so fraught with danger, how do you then improve real wages and spur consumer demand?

Well, the taming of inflation below 3% from the present over 15% rate will achieve the same object of increase in purchasing power across all sectors, and also reduce the cost of borrowing to below 10% across board for all sectors to provide a heavy dose of economic respite nationwide.

How can inflation be brought down below 3%?

CBN does not deny that the high inflation rate is driven by persistent excess money supply in the system. Consequently, the identification of the source and elimination or reduction of surplus money supply will ultimately tame inflation to best practice levels below 3%. Instructively, the scourge of systemic excess Naira supply will be significantly reduced when CBN stops substituting Naira allocations for Dollar denominated revenue.

SAVE THE NAIRA!! SAVE NIGERIANS!!!


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