Sam Amadi, Former Chairman of the Nigerian Electricity Regulatory Commission, and Director, Abuja School of Social and Political Thoughts

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  • Economic Governance
  • Electric Power
  • Law & Economy
  • Public Sector Reform

Negotiating a living or starvation minimum wage 04 Jun 2024

The leadership of Nigeria Labour Congress and Trade Union Congress has been locked in a dispute with the federal government over a new national minimum wage for workers. Nigeria is one of the many countries in the world that have a national minimum wage legislation. The extant Nigerian legislation is the National Minimum Wage Act, 2019 which stipulates N30,000.00 as the lowest remuneration for workers.

The battle for the national minimum wage is a tough one because it has significant implications for different levels of government and the private sector. The constitution grants the federal government exclusive jurisdiction over minimum wage. This means that states cannot go below the national minimum wage. Many of the states are bankrupt, or better still acts like bankrupts. They may face an uphill challenge with a higher minimum wage since they have mostly paid starvation wages to low-income workers. It is notable that one of the progressive governors, the Governor of Zamfara State, pays his teachers N10,000.00.

The problem with the minimum wage negotiation between the federal government and the leadership of the labour unions is the divergent concepts of development with which the two parties come to the table. For the government, development is not about the people, and it is not about freedom. But the premise of minimum wage is that development should focus on ensuring fairness and protection of basic needs of the people. The first international articulation of the minimum wage is by the International Labour Organisation in 1922 with the Minimum Wage Fixing Machinery Convention No. 26, which was affirmed by the Minimum Wage Fixing Convention No. 131 of 1970. Nigeria ratified the convention in 1972. The convention argues for a minimum wage based on the need to afford workers fair share of the fruits of their labour and to abolish poverty.

As the labour leadership would like to affirm, the idea of a minimum wage as a matter of social justice and poverty reduction has gained strength and has fed into constitutional and legal documents of many countries in the world. The Nigerian constitution, in its Fundamental Objectives and Directive Principles of State Policy codified in Chapter 2, mandates that “The State shall direct its policy towards ensuring that suitable and adequate shelter, suitable and adequate food, reasonable minimum living wage, old age care and pension and unemployment, sick benefits and welfare of the disabled are provided for all citizens.”

The main problem with the minimum wage saga is the conflicting economics. The idea of a minimum wage has separated neoclassical and institutional economics. In the years after the Great Depression and during the New Deal, institutional economists held sway, and reconceived the foundations of economic policymaking. The central claim of the institutionalist is that economic transactions are embedded in social institutions and norms that enable the market to deliver results. Therefore, it is not wise to rely solely on market price and demand and supply curves to determine economic policymaking. Institutionalists do not believe that the Labour market is perfectly competitive. Therefore, without regulation in the form of a minimum wage legislation, power asymmetry would lead to deprivation and exploitation of labour. Minimum wage and a cohort of other fair labour standards ensure that workers are protected from exploitation by firms.

However, neoclassical economists do not view minimal wage in friendly terms. They believe that whatever redistribution and antipoverty measures required can be more effectively achieved through other schemes than minimum wage legislation. George Stigler, in his classic essay, after analysing how minimum wage legislation impacts on aggregate employment, income and poverty, concludes that “the legal minimum wage will reduce aggregate output, and it will decrease the earnings of workers who had previously being receiving materially less than the minimum.” He based his conclusion on the fact that a legal minimum wage, instead of a market-price determined wage, will lead to firms employing less and changing their business structures to more capital and less labour. This idea that a minimum wage may lead to loss of jobs or less employment is based on the constructed rationality of market players and the idea that firms can make costless transitions when cost of labour rises. As Stigler puts it, “The higher the minimum wage, the greater will be the number of workers who will be discharged.”

It is likely the Nigerian political class and the private sector employers who have been opposed to significant improvement of minimum wage accept the logic of neoclassical economics. But that logic does not advocate for starvation wage, which is what some employers and some in the Nigerian government want for low-income workers. Think about this. In 1981 when Nigeria had its first national minimum wage, it was N1,500.00, which amounted to $2,419.00. At today’s exchange rate, the minimum wage of N30,000.00 amounts to $36.00. What a significant drop of value.

Now, the labour leaders’ position can be summarised as this. If you restore Nigeria worker to purchasing power parity (PPP) of only $1,000.00, the minimum wage would be N1.4 million. Let us discount half of that value for many other reasons and take the PPP to be $500.00, Nigerian workers would require about N800,000 as minimum wage. There is even a more routine approach. Even if we do not reflect the other macroeconomic changes and focus only on inflation and reindex the salaries of the minimum wage worker to inflation, that is, the famous Cost of Living Adjustment (COLA), the minimum wage would be nothing less than N75,000.00.

Without proposing any actual sum, it is safe to argue that proposing anything less than N80,000.00 as minimum wage in today’s Nigeria would be a starvation wage, not a living wage. The Edo State government understands this point. Without much hassle, it willingly announced a minimum wage of N70,000.00. From a human development perspective, particularly quality of life evaluation, nothing less than that comes close to a living wage in Nigeria today.

Sam Amadi, PhD, a former Chairman of the Nigerian Electricity Regulatory Commission, is the Director of Abuja School of Social and Political Thoughts.