Since the last quarter of the year 2010, the Central Bank of Nigeria (CBN) had initiated steps to address the rising rate of inflation in the country, and in early 2011, it raised the lending rate to checkmate the estimated possible “free flow” of cash by politicians in the election campaigning period. This “threat” is still faced by the possible implementation of the new minimum wage across all sectors of the economy as well as compensational political appointments expected soon. It could be negative minded to express the adverse effects of the increments in wages, but it is also incisive to note the decay in the productive sectors where such increase in wages is been considered.
Over the 20th century to present day, the world had witnessed tremendous changes in the productive sectors with innovative development in products and services; such that would guarantee satisfaction for wages paid and moneys spent. However, this success stories could more be attributed to the private sector organizations whose owners and/or employers have developed strategic procedures to ensure that workers’ wage commensurate with work done. Although the methods of pay have usually been stimulated by some form of imbalance caused by a crisis or demographic shift in the labour industry, the unattended plague in unemployment amidst insecurity of lives and properties, staggering educational standards, weak and poor infrastructure, health and social security issues showed that the nation’s economy has always adopted a compensational policy in wage to entice workers and the labour organizations.
The labour organizations had always been in the fore front of bargaining wages for workers, rather than advocating for a legislation that would provide social security; today, a large proportion of work-force has been without jobs, neither are the unemployed craftsmen and entrepreneurship skills supported with soft incentives that could keep them away from seeking the limited white collar jobs. More so, with no modern day benefits on basic infrastructure and essential products to compliment wage increase, workers would tend to have available cash to purchase fewer needed goods and services; a situation that would jeopardize the efforts of keeping inflation at bay. The measured inflation rate at any point in time will be made up of an array of individual price changes. But the amount of inflation in the economy is about more than just the sum of all individual price changes. Something more fundamental that determines the amount of inflation in the economy – whether it is 1%, 10% or 100% – is the level of monetary demand in the economy; how much money is being spent.
In an era of compensational policies to allure workers, whether through wage increase or political appointments, etc, and not considering adequate strategies to boost economic production, the economy only “enjoys” increase in cash circulation (note that the Nigerian economy is yet to integrate a cashless economic system). Workers will see their take-home pay (even though it does not take them out of the office or bank) as inadequate to pay for necessities of life, left alone for pleasure and leisure. Because the prices of products and services increases, consumers will be forced to spend less, or seek for rise in incomes to enable more spend, or alternatively, if consumers are prepared to spend a bigger proportion of their incomes and save less. As such, with wage increase, demand in the economy will rise and this, in turn, might cause some prices to rise.
Although every worker deserves a rise in pay, it would be more beneficial if the government invest more spending towards improving production of essential goods and services, implement a full annual budget, empowers entrepreneurial skills, and ensure stable power generation and distribution; these could provide the needed economic rebirth and fall in inflation rate in the country. But inflation is not just about demand in isolation. Inflation reflects the amount of demand in the economy relative to the available supply of goods and services – in other words, the amount of money people are spending is relative to what can be produced. I want to believe that Nigeria’s economic professors understand that the country’s economic output is very far low below par compared to the volume of consumption. If at all they didn’t notice that, a look at the volume of money spent on the country’s oil imports alone (even though an oil producing nation) should justify the country’s low production capabilities. Thus, one of the original descriptions of inflation remains valid – that “too much money chases too few goods.”
Although the nation can increase production to meet higher demand, but this is only possible by incurring higher costs; more capital expenditure will be required in providing infrastructure and social amenities to curb excess demand. For example, with wage increase, more Nigerians may seek to spend more on personal power generation which in turn will increase consumption of fuel and gas, more Nigerians will be inclined to buy cars to curtail the inadequacies and inconveniencies of the public transport system, seek better health care and education, engage the services of private security operatives where the public security system is weak, and on and on, the demand goes up. And when demand rises above what the country can produce, there tends to be upward pressure on costs and prices, thus waging up inflation in a challenging economy.
Wage increase and demands would be a little bit less adverse if it will affect internal economy alone; on the external look, wage increase and demands could lead to rise in imports and the gap between what the country imports and exports – its trade balance – might widen.In containing such inflationary pressures, demand needs to grow roughly in line with output. A greater concentration on reawakening the power sector will be a plus towards improving the country’s production; building and rebuilding of the country’s refineries will help in getting the economy’s foot back on track towards boosting exports as well as propelling all other productive sectors of the economy.
Alternative to demand for increase in minimum wage, there should be a “basic income” given at periodic times to all of a country’s citizens that would be sufficient to cover life’s necessities; this would be more effective than a minimum wage because economists believe it doesn’t impose any costs on government and employers. In complimentary to the basic income, the government should also consider refundable tax credit; given the rate of unemployment in the country, the refundable tax credit system does require that a household earn income, but it allows poorer households to reduce their tax liability to below zero, resulting in a tax payment from the government and delivers more monetary benefit to the poor at a lower cost to society.
While it is hoped that the new legislators will concentrate on law making other than self-enrichment and margin driven ventures, a consideration of a bill or law on “Basic Income and Refundable Tax Credits” will go a super high way in bridging the rich-poor gap in the economy. What is more? When basic income and refundable tax credits are both based on a government-backed laws, compulsory transfer of wealth from the rich to the poor,
from the producers to the consumers stimulates available cash without costs and does have “negligible” or no effects on inflation.