Minimum Wage: More than Numbers

Minimum wage is not an indicator of fair wage in many countries, including Nigeria. Recent efforts towards increasing the minimum wage would achieve more impact if channelled towards legislating compliance with this wage floor and implementing a safety-net strategy for casual workers. These could have significant impact on poverty levels and consequently promote socio-economic development. A minimum wage legislates how much the lowest skilled workers should be paid and is intended to address income inequality, but one may safely argue that in Nigeria, it has not yet successfully achieved these objectives. 

The current minimum wage of N18,000 (USD40) per month is applicable to ALL employers in Nigeria and not merely the Government. This amount ranks alongside Vietnam, Lesotho and Sierra Leone and far below South Africa (USD155), Egypt (USD174) and Brazil (USD218). Many in the Nigerian informal sector, especially domestic workers are paid sums below the wage floor and some employers give the excuse that they meet certain aspects of needs such as food and shelter, so that the paltry difference is what is paid out to the employees. These domestic workers’ salaries are equivalent to amounts spent at the salon for basic treatments and an aggregate of six months salaries may begin to compare with amounts spent on a night out or dinner with friends. The gini coefficient for Nigeria shows a highly unequal society despite this measure not capturing the country’s huge underground economy.

What really is a fair minimum wage given the peculiarities in this society? A few states claim to have free basic education but beyond basics, payment for education is required. Healthcare is not free as government hospitals also compete for resources and typically collect fees to stay afloat. Food is available but rising inflation is putting staples out of the reach of the poor. Transportation is not free and many are reliant on public systems which are oftentimes subsidized but cost money. Clothing and shoes are necessary and are not free though many open markets have sprung up across the country selling used, cheap items to the masses. Societal pressures abound with relatives from rural communities expecting assistance from their urban-dwelling relatives. Is N18,000 (USD40) able to cover the barest minimum of these requirements? Expectations from the poor are huge and one has not accounted for taxes, pensions, saving for emergencies or skills acquisition to improve themselves. The current national minimum wage of N18,000 was calculated based on cost of living in 2011 by trade unions using statistical data from the national bureau of statistics. 

Standard models for competitive labour markets predict that a higher minimum wage leads to job losses but this is hardly the case in Nigeria given that the government rarely terminates employment and there is a lack of enforcement in other sectors. The Provisions of the National Minimum Wage Act (as amended) 2011 again raises the vexed question of the appropriateness of Federal legislature decreeing a Minimum Wage Law that applies to the States and Local Governments when the earning capacity and expenditure of States and Local Governments differ. Experts argue that the inability of some states to comply with the Minimum Wage Act is directly linked to inefficiencies in state administration which stems from a lack of clear vision for what the state can achieve given its resources and peculiarities, and deepens through overstaffed and underproductive government employees, inadequate revenue collection methods, outright theft and irresponsible expenses by officials.

Micropreneurs and subsistence farmers have peculiar challenges with regards income. Many of the enterprises are small and usually run by themselves, making a minimum wage of no impact to them. This category of people will benefit immensely from joining cooperatives at which they will learn improved technics for higher output, have access to funding which can expand their enterprises and potentially command higher prices for their goods given the group effect. At such cooperatives, members contribute a small sum to cater to administration and cooperatives colleges share best practices for the benefits of these members. To enhance this, the government will be required to channel funding towards creating awareness on the existence and benefits of cooperatives in order to significantly increase participation by micropreneurs and subsistence farmers.

A far more difficult group to integrate in the minimum wage discourse are casual workers which make up a significant portion of the informal sector. This group earns an income only when they find work, making their earnings non-predictable and not guaranteed. They constitute a large segment of Nigerians and they do not pay taxes as they hardly have sufficient income to cover the most basic of their needs. They require a safety net from the government in form of social protection. The government at various levels must capture this segment, determine their numbers and their vocation in order to include them in forms of conditional cash transfer and skills acquisition programs.

Besides the meagreness of the current minimum wage is the indignity of labour. A cycle that ensures that the poor remain poor and even get poorer. That the poor will breed poor children who themselves seem to be unable to break the cycle of poverty. The income disparity is much larger than the World Bank suggests given undisclosed remunerations in terms of allowances, the opaqueness of the informal sector and the booming black market economy that appears to thrive in the country. 

At challenging times, there are a few ways that good management can raise an organization and indeed the whole country to achieve some respite. Management here refers to both public and private sector managers who can:

  1. Establish and pay a fair wage – While I agree with the principles behind instituting a minimum wage, I believe that beyond its prescriptions, organizations should be looking to pay for value. Essentially, like many already do, they should be measuring employee productivity and output and paying a commensurate wage. The government should be no exception, jobs need to be reappraised and regraded. If pursued then the salaries of many workers will rise beyond the current wage floor and the discourse will achieve practical results. In addition, the government should consider measuring the work delivered and value-add of legislators and political appointees, and making their salaries and allowances a multiple of the minimum wage to further promote the principle of fairness and to align interests on what correct wages should be. In Brazil, the minimum wage has significant impact on society as over 48 million people have their salaries computed as a multiple of the minimum wage

  2. Rationalize staff – And while this is not a popular view, it is required to the extent that everyone contributes at the highest level of their ability and work is efficient. I dare to say that many government employees have no schedule of duties, oftentimes do not turn up at work and hardly contribute to the overall delivery of the institutions to which they are assigned. So why keep and pay them? A new legislation was enacted in Italy in 2015 which makes it easier to fire job-for-life public sector employees in a bid to sanitize the system towards meritocracy. The arguments that there are no jobs in the private sector and that government work keeps people away from crime are both untenable. A better approach would be to create a more business-friendly environment and empower enterprises so that displaced workers can migrate to jobs where they will indeed contribute and can earn decent wages

  3. Make access to start-up easy and encourage cooperatives – For many who could potentially be sacked from their jobs given the need for improved efficiency, the Government should encourage people to come together in cooperatives and support them. For instance, agricultural cooperatives can be formed and parcels of land can be provided for periods of 5 or 10 years, with subsidized inputs to encourage farming. Various collective schemes can be established such that there are immediate off-takers for the outputs, leading to commercial quantities of agricultural produce, increased self-employment and greater impact. The cooperative farming can focus on outputs for which there is existing high commercial demand

  4. Embrace sustainable practices – Companies should consider paying lower skilled staff a living wage rather than just the minimum wage. It is not a sustainable strategy for companies to reduce salaries during challenging times. While the organization may be hard-hit, so too are the employees who face their own challenges due to increasing costs resulting from high inflation and other general hardships. 

  5. Enforce compliance – The wage floor must be enforced to ensure that it makes an impact beyond the 1% working in government. Legislation, implementation and the will to pay fairly are required to make minimum wage more than a myth 

Until the minimum wage means something to both the formal and informal sectors and government rises above over-staffing for the sake of employment, the minimum wage will continue to be a subject for debate and not a tool for impact.