After several months of foot-dragging, the new N30,000 minimum wage implementation has begun. TOBA AGBOOLA writes on the economic implications of the new wage.
Following the implementation of the new minimum wage any moment from now, the debate on whether it will enhance workers’ living condition and favour the economy has continued to occupy the front burner of national discourse.
While some people say an increase in the minimum wage will boost the economy, others disaggree. Those who say the economy will do well with the wage increase believe that it is a stimulant that the government must quickly inject to attack the downturn in the economy.
They say the best thing for the government to do is to increase its spending, especially in areas where the purchasing power of the people will be enhanced.
To some, an increase in minimum wage is not the best approach to help workers or the economy. They say any increase in the minimum wage is usually accompanied by a rise in the cost of commodities in the market because traders will want their share of the pay rise. They said what the government needs to is to provide the enabling environment for businesses to thrive.
They also argue that there is high inflation rate and any further increase in the minimum wage will increase the level of money supply, thus, worsening the problem.
An economic expert, Prof. Uche Uwaleke, who is also the head of Department, Banking and Finance, Nasarawa State University, Keffi said the new minimum wage would not lead to inflation contrary to speculations by some people.
“I do not agree that it will lead to inflation and this is because our aggregate demand is still weak.
“Recall that the last economic recession was caused by weak aggregate demand when many state governments could not pay salaries due to reduced FAAC allocations from dwindling oil prices.
“The economy has been making a slow recovery since the exit from recession. So, the associated economic expansion from implementing the new minimum wage will be salutary for the economy having negligible impact on the general price level,’’ he said.
Uwaleke recalled that the monthly reports by the National Bureau of Statistics (NBS) had shown that inflation in Nigeria, against the backdrop of low economic activities, was more of cost-push than demand-pull.
This, he said, was driven more by high cost of fuel, electricity and transport.
To him, historical evidence does not also support the claim that the new minimum wage would worsen inflationary pressure.
“In 2011 for instance, when the minimum wage was increased from N7,500 to N18,000, inflation rate actually dropped from over 13 per cent the previous year to less than 11 per cent.
“So, with increased output and a focus on capital spending, inflation spike arising from this development becomes a non issue,’’ Uwaleke added.
For the Secretary, Council of Academic Staff Union of Osun State Owned Tertiary Institutions, Olusegun Lana, the increment of the national minimum wage is one of the legal mechanisms through which the purchasing power of the people can be enhanced. When their purchasing power is enhanced, it will have a positive effect on the economy.
“Artisans, traders and other segments of the society will feel the impact and through that, the economy will come alive. In fact, this increase is long overdue,” he said.
Chairman, Nigeria Labour Congress (NLC), Bayelsa State chapter, John Bipre-Ndiomu said the need to increase the minimum wage of workers in Nigeria is long overdue considering the skyrocketing prices of goods and services in the country.
He said the argument on whether or not an increase will help the economy is untenable, misplaced and unthinkable.
He said: “I will also want to know if the wages of senators and members of the House of Representatives is helping the economy. Is it only the workers’ income that will be a problem to the country? Nigerians know too well that the salaries of workers cannot take them home. Whether anybody likes it or not, there is the urgent need to increase the minimum wage of Nigerian workers. The current inflationary trend in the country has rubbished workers’ salaries. So, it has become a necessity, not a luxury, to increase workers pay.
“You can imagine a worker buying a bag of rice for N18,000 and the salary of that man (worker) is N18,000. How do you want such a person to cope with life? Such a worker, no doubt, will be like a living dead.
“Sometimes, in a situation like this, the best way to help the economy is to pump money into the system. If workers have no money to go to the market, production will definitely not take place.”
To the Chairperson, Transition Monitoring Group, Dr Biola Afolabi-Akiyode, an increase in minimum wage is not the best approach to helping workers or the economy of Nigeria.
“If you look back at the history of wage increases, you will discover that any increase in the minimum wage is usually accompanied with a rise in the cost of commodities in the market because traders will want their share of the pay rise.
“We already have a high inflation rate and any further increase in the minimum wage will increase the level of money supply, thus worsening the problem,” he said.
To him an increase in the minimum wage will put pressure on private companies and state governments that cannot even pay the present minimum wage.
“Don’t forget, when prices of commodities go up as a result of wage increase by the Federal Government, both the private and the public workers will bear the brunt because we all shop from the same market.
“So, what the government should do is, rather than increasing the minimum wage, it should create an enabling environment for the people, through investment in massive infrastructure and other basic amenities, to drive down cost of production,” he said.
Tope Fasua, an Abuja -based economist and chief executive of Global Analytics Consulting Limited, said a bit of inflation, although not significant, should be expected if workers’ salaries are increased.
“Naturally if there is a wage increase, a bit of inflation should be expected. But, whatever rise in inflation should not discourage the government from increasing the salaries of workers.
“In other words, you cannot say the proposed increase in workers’ wages will trigger a five per cent increase in inflation or thereabout,” he said.
According to Fasua, one of the economic myths in Nigeria is people believing there is more money in the hands of everybody when a certain group of people gets a pay raise.
Therefore, everyone tends to increase prices faster than the effect of inflation, trying to cover up, mindless of the people in the private sector who might not benefit from the proposed increase in public servants’ wages.
“To a large extent, many private sector people cannot be forced to increase their workers’ wages along with the public sector,” he said.
For the Lead Director, Centre for Social Justice (CENSOJ), Eze Onyekpere, whoever says a new minimum wage will spike inflation has no basic understanding of what inflation really means.
“Whoever says the proposed increase in the minimum wage will spike inflation is an economist without a school. They have no understanding of what inflation is. When the National Assembly announced jumbo allowances for its members’ in 2017, what effect did it have on the country’s economy?” he asked.
Rather than increasing inflation, the CENSOJ boss said an increase in the minimum wage would be a great thing to happen to the Nigerian economy, as workers would have more disposable income at hand.
“Buying more will stimulate demand from industries that are producing as well as a lot of inventory in their warehouse,” he said.
He said the benefits of an increased income for the workers will not be limited to salary earners, but also others in the economy (their dependents, relations).
At the end of the day, he said, it will be a win-win scenario for everyone and will also motivate them to improve service delivery.
However, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, during a debate on the new minimum wage said he does not believe the proposed increase in the minimum wage will spike inflation. Rather, he says the increase will stimulate output growth in the economy.