The National Minimum Wage: Balancing Economic Growth and Worker Welfare

The minimum wage policy in Nigeria is a critical instrument aimed at addressing income disparities, improving living standards, and promoting economic equality. As Africa's largest economy, Nigeria faces unique challenges in implementing an effective minimum wage policy due to its diverse labour market and socio-economic conditions. Recently, the Nigeria Labour Congress (NLC), an umbrella body for trade unions, has proposed an increase in the minimum wage from the current N30,000 monthly to N200,000 monthly due to the inflationary effects caused by the removal of fuel subsidy. This article examines the minimum wage policy in Nigeria, its historical context, current trends, and its impact on various aspects of the economy.

Minimum wage refers to the legally mandated lowest hourly, daily, or monthly wage rate that employers must pay their employees for their labour. It is a government policy aimed at ensuring that workers receive a fair and minimum level of compensation for their work, thereby providing a basic standard of living. The purpose of establishing a minimum wage is to protect workers from exploitation, reduce income inequality, alleviate poverty, and promote social and economic well-being.

The Historical Context

The development of the minimum wage policy in Nigeria can be traced back to the 1981 Wage and Salary Commission Act. The Shagari administration implemented a minimum wage of of N125 monthly (worth $209 in those days!). Since then, minimum wage legislation has undergone several adjustments and revisions to keep pace with inflation and address the needs of the workforce. Notable milestones include the Minimum Wage Decree in 1990 to increase minimum wage to N250 (worth $31 at the time), the Minimum Wage Act of 2000, which increased the minimum wage of Federal workers to N7,500 ($75) and N5,500 ($55) for State government and private sector workers.

In 2011, there was a further introduction of the National Minimum Wage Act with subsequent amendments to supposedly reflect changing economic realities. The minimum wage was set at N18,000 ($43). President Muhammadu Buhari signed the Minimum Wage Repeal and Re-Enactment Act, 2019 into law on April 18, 2019. This brought the minimum wage to the current N30,000 (between $40 to $65 depending on exchange rate used).

Minimum wage timelines

Minimum Wage Implementation

Implementing and enforcing an effective minimum wage policy in Nigeria has been challenging. Limited institutional capacity, weak compliance mechanisms, and inadequate data have posed significant hurdles and have made the implementation uneven across the country. While the federal government sets the minimum wage at the national level, individual states have the autonomy to adjust it based on their specific circumstances. As a result, some states have struggled to implement the new minimum wage due to fiscal constraints and resource limitations. Consequently, there have been delays and inconsistencies in the adoption and full implementation of the minimum wage across all states. It was a struggle to find implementation data by States in Nigeria.

Additionally, the informal sector, which employs a significant portion of the Nigerian workforce, often operates outside the purview of minimum wage regulations. Weak monitoring and enforcement mechanisms have limited the effectiveness of the minimum wage policy, with some employers failing to comply with the mandated wage rates due to low growth and weak margins.

The specific amount of the minimum wage is determined through a combination of factors, including economic conditions, cost of living, productivity levels, and social considerations. The minimum wage is supposed to be periodically reviewed and adjusted to account for inflation and changes in economic circumstances to ensure its relevance and effectiveness.

Real minimum wage

By establishing a base level for wages, the minimum wage seeks to provide workers with a baseline income that covers their basic needs, such as food, shelter, clothing, healthcare, and education. It also helps prevent unfair labour practices, such as the exploitation of vulnerable workers or the prevalence of sweatshops.

Picture a worker that earns N30,000 as a monthly salary (the current minimum wage) in cities like Lagos, Abuja & Port Harcourt. This will hardly cover the cost of transportation to and from the office in a month not to talk of feeding. The worker will not only be demotivated but will actively look for ways to make extra income either by utilizing his time elsewhere, or by exploiting loopholes within the work environment. With the current subsidy removal, that amount of money will hardly be enough to meet his basic nutritional needs.

Socioeconomic Implications

Implementing a minimum wage policy is not merely a symbolic gesture but a crucial economic tool that impacts various aspects of a country's economy. In the case of Nigeria, the poor implementation of the minimum wage has significant socioeconomic implications that extend beyond workers' welfare. The minimum wage debate has its pros and cons on its effect on the economy.

Productivity and Innovation: There is a popular saying "if you pay peanuts, you get monkeys", which refers to employers that pay very low wages and expect wonders. So, consider that the remuneration offered to employees will not only affect productivity but will affect the caliber of talent an employer can attract. When workers are fairly compensated, they may be more motivated to improve their performance, leading to higher output and innovation. The worker that is not worried about how to survive, will undoubtedly have more focus and creativity for positive results. Increased productivity can drive economic growth by boosting competitiveness, attracting investment, and fostering technological advancements.

Corruption and unethical practices: There are two major drivers of corruption, greed and fear. When workers are not adequately compensated, it exacerbates the drivers of corruption. The fear of poverty is often a great motivator for corruption and other unethical practices. There is a popular Nigerian phrase of "Na where you dey work, you go chop", which essentially consists of exploiting opportunities in one's work place to make extra income. These practices tend to be more prevalent in environments where the workers' compensation is very low and not in line with the realities of the economy.

Macroeconomic Stability: The poor implementation of the minimum wage can have broader implications for macroeconomic stability. When workers earn low wages, their purchasing power is reduced, leading to decreased consumer spending. This can negatively impact business revenues, profitability, and economic growth. Furthermore, when workers are paid wages below the minimum standard, their taxable income decreases. This results in reduced tax contributions to the government.

Exploitation and Income Inequality: The idea behind having a minimum wage is to greatly reduce exploitation of workers, especially in low-paying sectors. In a tough economic environment like Nigeria, where margins are tight, business owners will look for ways to maximize their profits and one of the easiest ways of doing that is through having a low wage bill. Due to the lack of jobs, it is an employer's market and therefore workers are desperate to take any available job despite the poor remuneration and exploitative working conditions. "At all, at all na him bad pass", a colloquial phrase that denotes being grateful for at least getting the minimum rather than nothing at all.

The Balancing Act: Welfare or Farewell?

While the minimum wage is primarily focused on protecting low-wage workers, it can have broader economic implications. Some argue that a higher minimum wage can stimulate consumer spending, reduce income inequality, improve workers' well-being, and contribute to overall economic growth. Others raise concerns about potential negative effects, such as job losses, reduced business competitiveness, and inflationary pressures.

The real debate in Nigeria is whether to increase the pay of government workers. Raising the minimum wage will undoubtedly put pressure on the already over-bloated wage bill of the government as the incremental increase is reflected at all pay grades. Furthermore, State governments that have a terrible track record of paying government workers' salaries at the current minimum wage, will certainly struggle to implement an increase.

Nigeria is a diverse country with regional variations in economic development. The impact of the minimum wage on economic growth may differ across regions, as some areas may be more economically vibrant and capable of absorbing higher labour costs, while others may struggle with implementation and face challenges related to productivity and competitiveness.

Increase productivity

What are some possible solutions? Some practical solutions have already been announced in certain States. Reduced working hours have been announced in Kwara State, whilst Edo State has increased the minimum wage by N10,000 to N40,000. With the current "gig economy" trend, especially amongst the Gen Z, it may be worth looking at the employment laws into the public sector and offer contractual rather than permanent job arrangements. A pay as you work approach has recently been proposed by the government. Government may also consider a reduction in employee taxes. Whilst, this may have an impact on revenue, it reduces the need for additional cash outlay for salary payments.

Ultimately, strengthening social safety nets can provide a softer landing for vulnerable workers and their families. Early millennials and above in Nigeria can attest to the fact that the majority of children went to government schools, with little to no school fees. Government hospitals were functioning and had the best doctors. There were various affordable housing projects especially for civil servants. The civil servant and the private sector worker's lifestyle were not drastically different.

Implementing comprehensive social welfare programs that target key sectors such as education, healthcare, housing, and transportation will go a long way in helping to alleviate poverty, reduce income inequality, and enhance worker welfare. However, we must learn from previous mistakes and not allow these entities to be solely run by government. Instead, encouraging private sector participation through social enterprises subsidized by government will be a much more effective model. This would also allow for transitioning of existing civil servants into the private sector, reducing the burden on government and encouraging a more productivity-driven approach to public services. Increasing the minimum wage alone is essentially increasing the welfare of just a small percentage of people (government workers) in a quasi-socialist arrangement. However, government interventions in critical development sectors will have a more far reaching effect on the country as a whole.

Thanks for taking time out to read this article. Please feel free to send me a message or comment on the article. I am always happy to discuss other perspectives and explore different philosophies.