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Maximum worry over minimum wage

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President Muhammadu Buhari

For several years now there has been a tidal wave of discontent over Nigeria’s minimum wage. The workers have consistently said at agitation points that their take home pay cannot take them home. And even with that truthful remark some of the state governments were agitating, a few years ago, for a reduction in the minimum wage. It was a ridiculous demand based on their lack of ability to pay even the meagre rate. At that time the cost of crude oil had come down drastically and so did the money due to the states.

So these state governments were simply taking the path of least resistance by asking for a pay cut for their workers. There was a roar of disapproval from the public so the governors did not have their way. Some of them, however, found some means of downsizing without being pelted with stones.

The cry for a review of the minimum wage has been loud. Recently, it reached the level of a gut-wrenching scream and President Muhammadu Buhari had to sit up and listen.

On November 27 this year, he set up a 30-person National Minimum Wage Committee. That Committee headed by an experienced retired civil servant, Ms Amal Pepple, has six governors, some ministers, labour representatives and private sector personnel also. The composition of the review team is excellent and the air is dense with great expectation. At the inauguration of the committee, Buhari expressed the hope that the outcome of the deliberation of the committee would be consensual and generally acceptable. “A tall order.

The present minimum wage is ₦18,000 per month. The labour leaders have proposed a new minimum wage of ₦56,000 per month. That is an asking figure and the general expectation is that the committee will recommend something above ₦18,000 but below ₦56,000 per month. What that figure will be will depend on what the committee members think of the issue of affordability.

But first let us look at the minimum wage trajectory. The first prescribed minimum wage in Nigeria was in 1981. The National Minimum Wage Act of 1981 which was enacted by the National Assembly under the Shehu Shagari government put the figure at ₦125 per month. Ten years later the figure was raised to ₦250 per month. In 2000 when Chief Olusegun Obasanjo became president the figure was increased to ₦5,500 per month and in 2011 under Dr. Goodluck Jonathan the ₦18,000 mark was reached. This figure has stayed in the books for the past six years while its real value has been severely eroded.

At ₦18,000 per month it means that the worker has only ₦600 to spend per day. At today’s prices ₦600 cannot buy three square meals for one person. If the person has a family his problem is compounded.

Since the Federal Government increased the price of petrol in May 2016 from ₦87 per litre to ₦145 per litre there has been a phenomenal increase in the prices of food, transportation and other services. Some of the companies have laid off their staff or cut their salaries or even closed down completely because of the escalating cost of running their businesses. Since then inflation has been a double digit affair.

Nigeria is a country that is heavily import dependent. The prices of many goods are tied to the exchange rate. Mr. Ayuba Wabba, President of the Nigeria Labour Congress, has hinged his endorsement of a ₦56,000 minimum wage largely on the dwindling value of the naira against the dollar. According to him, the naira was exchanging at ₦110 to the dollar when the present minimum rate was fixed. At the present rate of ₦305 to $1 at the Inter-bank window, the current minimum wage is too minimal, too miserable, to be really useful today.

What will the committee members consider before arriving at a new minimum wage figure? Will they do a spreadsheet analysis of the productivity of the average workers, the hours of work, the quantum of work, the cost of food and fuel and clothing and housing and the potential ability of the employer to pay? The negotiation among the members will be as fragile as porcelain because the governors among them will resist an increase that will substantially increase the woes of their colleagues.

Right now everything is not coming up roses for the state governments. Most of the states are in a state of cryonic suspension. Most of them have not been able to pay salary arrears even with the bailout funds provided by the Federal Government. An increase in minimum wage no matter how meagre will rub pepper in the gaping wound that they are already nursing.

Some of them are carrying on their backs big debts inherited from their predecessors while others are piling up new debts of their own as they strive to make an impact on the development maps of their states.

The committee must also worry about the possible effect of the minimum wage increase. Will it lead to downsizing, casualisation of labour, outsourcing or closure by small companies currently struggling to survive? Obviously, an increase will not come without consequences but there must be an increase.

The tricky question to answer is: By how much? The committee is seated between the rock and the hard place. If the increase is too low labour will not accept it. If it is too high the state governments may reject it. So what should be the acceptable mean, one that will make labour happy and the governors not too unhappy? I have no idea.

There is something else for the committee to think about. If the new minimum wage meets the salary earners in the next higher grade what will happen? Will they be moved to a new and higher salary level or will they just be left to stew in their juice while their juniors overtake them by the benefit of the new minimum wage? The sensible thing to do will of course be to adjust upwards the salaries of those in the grades immediately after the new minimum wage. That will amount to another addition to the wage bill. For reasons of fairness this is inevitable.

Let’s look at another aspect of the minimum wage issue. This matter is in the exclusive legislative list which means it is only the Federal Government that can legislate on it. But the problem is that the 36 states have varying financial capabilities especially in the generation of internal revenue.

Secondly, the cost of living is higher in some states than in others because of either their population density, food production capacity and efficient transport service. This means that the utilisation of the minimum wage by a wage earner depends on where he or she works.

A uniform wage rate does not therefore address these peculiarities. It simply puts every minimum wage earner in a basket and assigns a salary to him arbitrarily, why can’t the relevant section of the constitution be amended and states allowed to fix wages that they can pay based on their ability? This uniformisation of virtually everything in our so-called federal system is part of the reason for our backwardness. Why should Borno or Benue states be required by law to pay the same salary to their workers as Lagos or Rivers states? This is a skewed federal arrangement that fails to recognise state idiosyncrasies. A new minimum wage based on this arrangement will simply compound the problems of the low income earning states.

But then, perhaps this will spur the states that are generating very low revenue to sit up and think. They may also be forced to prune the fat from their spending and cut their agbada according to the cloth available to them. If that happens then the minimum wage increase will be a blessing in disguise.


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Minimum Wage
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