macroafricaintel | Increase the minimum wage

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

To be heard, organized labour has to do something drastic each time, it seems. It is often ignored otherwise. That is even as the current labour leadership is believed to be sympathetic to the Muhammadu Buhari administration. It is probably the case that the president does not lose much sleep when the Ayuba Wahab-led Nigeria Labour Congress (NLC) barks. Not that he likely takes it for granted, but since he likely considers the current leadership an ally of his administration, it is natural for him and his officials to be a little complacent. It does not help, of course, that the labour movement has become factionalised as well, with the emergence of the rival United Labour Congress. That said, the minimum wage issue is an emotive and unifying one. At 18,000 naira, about US$50, it is ridiculously low. It is perhaps no more than the average worker in Lagos, Nigeria’s commercial capital, spends on transportation alone. Not only is an increase necessary, it should be institutionalised to occur yearly to reflect the prevailing cost of living; which tends to increase rather than decrease. So, to my mind, the question in negotiations between organized labour and the government is not so much about whether the minimum wage should be increased but by how much.

Coverage, level & compliance
According to the International Labour Organisation, a United Nations body, there are three main dimensions of an effective miniumum wage. First, it should cover all workers. Second, the level should be adequate; that is, it should cover basic needs like food, transportation, accommodation and so on. Third, there should be complete compliance by all employers. A refrain about too high a minimum wage is often that it would force employers to cut their headcount. Research suggests that is not often the case. Besides, in countries where hitherto there was no minimum wage, in South Africa for instance, myriad arrangements by various labour unions made such jurisdictions relatively unattractive for manufacturing foreign direct investment (FDI), the kind that creates massive jobs. Having now instituted a minimum wage of 3,500 rand per month, about US$277 or 99,720 naira, after much resistance by labour unions, it is expected the country would get more manufacturing FDI, which it direly needs to curb dangerously high youth unemployment.

There have been arguments about whether Nigeria can afford a minimum wage as high as 65,000 naira (US$180) that organized labour desires. The concern is that in light of the current high headcount in the federal and state civil services, the respective governments might not be able to afford it. In my view, this is not an appropriate way to look at the issue. The minimum wage is ideally aimed at workers in the private sector who might not have wage protections otherwise. It is illegal for a maid, driver, and other low-income earners to be contracted below the minimum wage. That is even as many private employers flout the law in this regard. Nonetheless, if the minimum wage is reflective of realities on the ground, there is a threshold to aspire to, or to seek redress against, at least. Yes, the services of these workers are often acquired by “middle-class” Nigerians without written contracts. But were one to be insisted upon, it is doubtful such employers would want to put pen to paper on what would clearly violate the law. In other words, the minimum wage issue matters for all workers; both public and private.

In any case, with elections around the corner and a president desirous of a second term, it is almost a sure thing that labour would likely get what it wants from the government; to some extent, at least. Unfortunately, the whole exercise is potentially self-defeating. With all the ceremony beforehand, artificial price increases for basic goods and items are likely. That was the case for past minimum wage increases, at least. And in the event of a currency depreciation, as many basic goods and items are still imported, the purchasing power of a potential increase could also be quickly eroded. Fortunately, the outlook for the price of crude oil in the international markets suggests the commodity would likely remain dear for importers and thus beef up the coffers of exporters like Nigeria. So, a major depreciation of the naira is not likely soon. To avoid artificially raising inflation expectations in the future, however, an automatic cost of living adjustment to the minimum wage, done yearly, is advised.

Position workers for the future
Some pundits suggest the NLC’s minimum wage proposal would make Nigeria even more uncompetitive. That is, in light of already many constraints – like little or no power supply, myriad taxes, and so on – weighing on job-creating business activities, manufacturing especially. That should not be a major consideration in my view. Just like one would advocate for the public service, private firms should only hire the staff they need to do the most productive work for the best wages. With automation and artificial intelligence increasingly reducing the need for labour-intensive tasks in industry, human workers that would be needed in the not so distant future would be those with skills that augment these technologies or that the machines cannot yet deploy without error. In other words, organized labour, whether in Nigeria or elsewhere, should begin to look beyond remonstrations over paltry wages to instead how their members would be better positioned for a future where they might be paid no heed, no matter how loud their noise is, if their skills do not meet the needs of employers.

Also published in my BusinessDay column (Tuesdays). See link viz. 

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