For nearly 48 hours, the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) shut down critical sectors of the economy in their demand for higher wages for Nigerian workers. While the nationwide strike has been suspended, Assistant Editor, COLLINS NWEZE writes that in arriving at a new minimum wage, all stakeholders should ensure that the interests of employees, employers, SMEs and the broader economy are taken into account.
Almost every country has a minimum wage. The details vary: some countries, such as France, fix a universal minimum across the economy, while others, such as New Zealand and South Africa, differentiate between sectors and types of workers.
In Nigeria, the minimum wage is set by the government and revised periodically in consultation with the private sector and other stakeholders.
And whenever that revision happens, it comes with serious disruptions to the economy as witnessed on Monday and Tuesday this week when labour unions embarked on two-day national strike.
The minimum wage is the lowest amount of remuneration that employers are legally required to pay their employees for the work done within a specified period. In Nigeria, the minimum wage serves as a crucial benchmark for ensuring decent living standards for workers across various sectors of the economy. The minimum wage not only impacts the livelihoods of workers but also plays a significant role in poverty reduction, economic growth, and social stability.
While the negotiations continue, government has pledged to pay over N60,000, representing more than 100 per cent upward review. Labour is asking for figures far more than that, and has called off national strike for one week to allow amicable settlement.
Still, there are limits to what minimum wages can achieve. Those that are set too high can cause significant job losses and hence have perverse distributional effects. As low-income earners lose their jobs, inequality will widen. Furthermore, minimum wage increases can pump up the overall wage structure, leaving income disparity unchanged because firms want their more productive workers to be better compensated.
The truth is that for the average Nigerian worker, with headline inflation at 33.69 per cent by April 2024 and food inflation above 40 per cent, the current wage is insufficient and cannot sustain any worker.
This confirmed the need for the government and all labour employers in Nigeria to review salaries upwards. However, the government’s current economic realities and financial position make it challenging to create a salary increase that is not backed by increased value and productivity. While it remains a tough and complex scenario, a balancing act is required to avoid harsh negative implications on the economy and the unintended backlash on people with low incomes and many on the fringes of our society.
However, adequate compensation is essential for motivating workers and enhancing productivity. When workers receive fair wages, they are more likely to be motivated, dynamic, proactive, committed, and productive in their jobs, which can ultimately benefit employers and contribute to economic growth.
But where ever the pendulum swings, new minimum wage comes with diverse implications for key economic indicators like inflation, cost of operation for SMEs, government and overall economy.
As at March 9th 2019, the new minimum wage bill was passed in Nigeria which was pegged at N30,000 per month. However, the Nigerian labour movement has consistently advocated for an increase in the minimum wage due to the rising cost of living, inflationary pressures, and the need to improve the standard of living for workers in the face of economic challenges cum the fact that some state governors has refused to even implement the minimum wage till date.
Rising inflation figures present new challenges
Nigeria’s headline inflation (year-on-year) rose to 33.69 per cent in April 2024, from 33.20 per cent in March, driven by both the food and core components.
The Central Bank of Nigeria (CBN) Governor, Yemi Cardoso, noted at the last Monetary Policy Committee (MPC) meeting that the inflationary pressure continues to be driven largely by food inflation.
On a month-on-month basis, however, headline inflation declined significantly to 2.29 per cent in April 2024, from 3.02 per cent in March. The food and core components also declined to 2.50 and 2.20 per cent from 3.62 and 2.54 per cent, respectively, in the same period.
According to the National Bureau of Statistics, real GDP grew by 3.46 per cent in the fourth quarter of 2023, compared with 2.54 per cent in the third quarter, driven by both the oil and nonoil sectors. Recent Purchasing Manager’s Index (PMI) suggests that economic activities will continue to expand in 2024. In addition, staff forecasts indicate that the domestic economy will grow by 3.38 per cent in 2024.
The Committee thus reiterated several challenges confronting the effective moderation of food inflation to include: rising cost of transportation of farm produce; infrastructure-related constraints along the line of distribution network; security challenges in some food producing areas; and exchange rate pass-through to domestic prices for imported food items. The MPC members urged that more be done to address the security of farming communities to guarantee improved food production in these areas.
Steps to minimum wage review
As the Federal Government continues to engage relevant stakeholders, including labour unions, employers’ organizations, government agencies, and economic experts, and organized private sector in discussions and negotiations regarding minimum wage adjustments, collaborative efforts involving all stakeholders help ensure that the interests of employees, employers, and the broader economy are taken into account.
Analysts insist that before implementing any changes to the minimum wage, policymakers should conduct a comprehensive cost-benefit analysis to assess the potential impact on businesses, employment levels, inflation, and overall economic performance. This analysis helps policymakers make informed decisions that balance the interests of workers and employers while promoting economic stability and growth devoid of unnecessary economic fluctuation.
Above all, the capacity of states and employers to pay different wages based on the resources at their disposal should be taken into consideration, as it could be the height of injustice for states who have very lean resources to be compelled to pay the same minimum wage with states that has enormous resources at their disposal.
Impact on states, SMEs
A Lagos-based economist, Michael Nwadike, explained that a well-developed and policy-enabled SMEs sector, will spur greater innovation, accelerate business and investment-friendly industrial policies to drive export market development and structural transformations of the economy.
For him, higher wages will result in both negative and positive impacts on businesses and economy.
He explained that higher wages could trigger higher inflation figures, which will worsen the operations of many SMEs barely managing to survive, and the cost of doing business will skyrocket.
He insisted that not many SMEs and even state governments will be able to pay higher wages , and still remain in business.
“Many firms are struggling with paying the existing minimum wage, given the increase in the cost of doing business, interest in loans is over 42 per cent, the cost of raw materials is rising, while consumers’ purchasing power cannot match the speed at which prices of goods and services rise,” he said.
Nwadike said many state governments are not even able to meet their current wage obligations, and will even struggle more to do same with higher wages.
He expects different states to negotiate with labour unions within their states for acceptable and feasible wage plan that will sustain growth of businesses and economy.
NLC, TUC new moves
The NLC and TUC have announced the suspension of their industrial action for one week. The announcement was made by TUC President, Festus Osifo, came after a joint extraordinary national executive council meeting of the unions held in Abuja on Tuesday.
“A joint NEC meeting of TUC/NLC has approved to relax the industrial action for one week with immediate effect,” he said.
NLC President, Joe Ajaero, said that the strike was called off to enable the leadership of the unions to interface with their members. The unions embarked on the strike on Monday to protest the government’s refusal to meet their demand for a minimum wage of N494,000 though the government proposed N60,000.
They had met with the government team led by the Secretary to the Government of the Federation, George Akume, on Monday night in Abuja.
Although no amount was agreed upon as the new minimum wage, the parties agreed that the federal government would raise it above the N60,000 it currently offers.
“The President, Commander-in-Chief of the Armed Forces, Federal Republic of Nigeria is committed to a National Minimum Wage that is higher than N60,000,” the agreement states.
To expedite a final agreement on the new minimum wage, the Tripartite Committee on National Minimum Wage will meet daily over the week. The goal is to arrive at an agreeable minimum wage that meets the expectations of both the government and the labour unions.
The agreement was signed by Messrs Ajaero and Osifo on the side of labour and the Minister of Information, Mohammed Idris, and the Minister of State for Labour and Employment, Nkeiruka Onyejeocha, on the government’s side.
Initially, the labour unions had proposed N615,500 as the minimum wage, citing the high cost of living.
However, the federal government rejected the N615,500 proposal and offered N48,000.
On May 15, the NLC and TUC rejected the N48,000 minimum wage offered by the government.
On May 21, the federal government increased the proposed minimum wage to N54,000, which the labour again rejected and described as “unacceptable”.
Again, the federal government proposed N60,000, and it was rejected.
House of Reps’ step in
The House of Representatives picked holes in the handling of the suspended industrial action by union leaders, describing the shutting down of the national grid as an act of economic sabotage.
In a statement by its spokesman Akin Rotimi, the House insisted that the parliament supports the clamour for a living wage for workers but warned against raising salaries beyond what the economy can accommodate to guard against untold consequences.
“The House of Representatives acknowledges the recent industrial action undertaken by the NLC and the TUC due to the breakdown in negotiations for a new national minimum wage. The People’s House is pleased to note that the strike action has been suspended for one week to allow for further negotiation,” he said.
“During this period, as we have previously demonstrated, the People’s House remains responsive and committed to actively engaging all stakeholders to resolve the issues in the best interest of Nigerians. House Speaker Abbas Tajudeen has consistently advocated a living wage and better working conditions for workers,” he said.
“While the Green Chamber is in full support of the call for improved wages and working conditions, there is a great need to exercise caution in increasing the minimum wage beyond what our economy can sustain, to avoid unintended outcomes such as inflation, layoffs, and other adverse economic consequences. Thus, we restate the importance of approaching this issue from a balanced perspective to ensure long-term stability and prosperity for all,” he said.
