Debating the National Minimum Wage

Recently, the Senates approved the N18, 000 new minimum wage for workers as proposed by President Goodluck Jonathan which has consequently given birth to the Section 2 (1) of the National Minimum Wage Act which states that “As from the commencement of this act, it shall be duty of every employer to pay a wage not less than the national minimum wage of N18, 000 per month to every worker under his establishment.”

The Act gives rise to the increment of the national minimum wage from N7, 500 to N18, 000.

Although, the principal aims of the proposed minimum wage include alleviating sufferings, improve welfare and boost higher productivity in the public service. However, at this level, Nigerians need to look beyond the immediate benefit such increments may serve and think of the futuristic consequences such as amplifying level of inflation, industrial unrest among others economic problems.

Prior to the presentation of the wage increase proposal to the National Assembly, the Federal Government should have study critically, the national financial and economic structures that would ensure adequate, effective and proper implementation.

The implementation of the minimum wage has posed a series of challenges to various states’ governors. The Chairman of Nigerian Governors’ Forum and Rivers State Governor, Rotimi Amaechi, lamented that unless the revenue sharing formula was altered to favour the states, the new minimum pay rise would be impossible to effect.

It seems that the last federal lawmakers ignored economic technicalities and political implications surrounding minimum wage increase when most states lack the economic capacity to meet such financial obligations. They also failed to realise that wage increase would have negative effect on infrastructural development and other vital sectors like education, health and capital expenditure of states.

Meanwhile governors are clamouring for reviews of revenue allocation formula to favour the states. But in his response to the agitation for new allocation indices, the Chairman of Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) Engr. Elias Mbam disclosed that for just and fair revenue allocation formula the Commission would consult widely undertake tours and seek for memoranda from Nigerians. He also disclosed that the Commission is working towards submitting its proposal by first quarter of the year 2012.

Besides, there are two different views toward the newly proposed revenue formula by the Governors’ Forum; there are the view of derivation-based formula supporters and that of principle of equality of states. The latter will anticipatory mark another era of resource control in the nation.

If the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) options for the principle of equality in revenue allocation, what would be economic condition of such states having higher population than others? Such principle may result to another era of socio-economic inequality.

Consider Nigeria as a nation with low level of infrastructural facilities, what would be the level of infrastructural development in a situation where there is a general increase in wage? The implementation of wage increase across the states would have negative effects on infrastructural development and the development of other vital sectors like education, health and many others as capital expenditure of states would be reduced to cater for the increment.

There emerged another suggestive development as some groups are calling for removal of the petroleum subsidy, where the profit would be added to the states allocations. Apart from insensitivity on the part of those clamouring for the removal of subsidy which could amplify the level of poverty among the masses, it would also trigger inflationary reactions. In addition, the current yet to be fully implemented N18, 000 minimum wage would have to be raised upward to meet expected higher cost of goods and services due to likely increase in price of petroleum product.

In a recent report of the Bank of England (2011), it discloses that inflation is not just about demand in isolation; it reflects the amount of demand in the economy relative to the available supply of goods and services. That is, the amounts of money people spend relative to what is produced. Inflation tends to rise at the current price level while demand for goods and services are greater than the economy’s ability to produce them. We should remember that Nigerian still depends heavily on foreign technology and human resources to address er its major economic problems such as what and how to produce?

The result may not be pleasant if the rate of demands in the country exhausts the rate of supply and our capability to produce. Such situation will anticipatory accelerate massive level of importations in the country and therefore posed to the economy, unfavourable balance of payment. Increase in demand sometimes reduces people savings’ capacity.

It has been noted in the United States Joint Economic Committee Report (1996) that whenever minimum wage workers receive a boost in their take home pay, higher-paid workers also tend to receive similar pay hikes. This could be concretely derived in Nigerian instance where the Members of the House of Representatives seek fresh jumbo pay following the endorsement of the Minimum Wage Act for the national civil servants.

This phenomenon will have negative implications on the national economic development such deficit budget, decrease in external reserves and excessive borrowings from international community or organizations to finance the national budget. That is, government paid more than it received during the budget period.

Furthermore, the Joint Economic Committee reports that rising minimum wage hurts the poor, takes away jobs, denies people basic welfare, encourage school students to be drop out, harms the lifetime earnings prospects of low-skilled workers. For instance, the job losses in the United State ranged from 625, 000 to 1,000,000.

Another bitter consequence of the increase in minimum wage is Industrial unrest across the country; as the Government and Labour Union disagree over the payment of the new minimum wage. This could be observed from the several strike actions embarked upon by the Labour Union in some parts of the country. Constant strike actions result to a long era of economic and political instabilities in the country.

Therefore, a strategic effort should be employed in the negotiation and implementation of the Minimum Wage Act to ensure effectiveness in realization and actualization of its mandates. Alternatively Nigerian would have optioned for lower price system in the economy, however, this cannot be achieved as over reliance on import goods has exhausted the country economic affairs.

Abubakar Jimoh
[email protected]
Associate of Accounting Technicians (AAT)


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