MINIMUM WAGE IN NIGERIA:

How Ready Are The

Private Sector Players?

-A Whitepaper-
Table Of Content

The New Minimum Wage And Its

Implications On The Stakeholders

Causes And Effects Of The Delayed

Implementation Of The New Minimum Wage

Private Sector Players And Their

Fate With The New Minimum Wage

VAT Increase And Its Consequences

On The Minimum Wage
 THE NEW MINIMUM WAGE AND
ITS IMPLICATIONS ON THE STAKEHOLDERS

“The underlying reason of a minimum wage is to set a universal minimum rate an

employer should pay an employee on legal grounds. “Nobody who works 40
hours a week should be living in poverty.” –Sen Bernie Sanders.

The increase in minimum wage has been one controversial issue in Nigeria for
some period of time. The past governments that have been in position have
made one modification or another as increase to the minimum wage, and the
last time it was increased was in 2011 to N18, 000. The law stipulates that the
National Minimum Wage be reviewed once every five years, and what ought to
have been reviewed in 2016 was not reviewed. This brought up allegations by
the Nigerian labour and trade unions for it not being implemented.

After the Nigeria Labour Congress (NLC) initially proposed N65,000 minimum
wage, the Federal Government (FG) and NLC finally came to an agreement of
N30,000 as the minimum wage, and on the 19th of March 2019, the New
Minimum wage bill was approved by the Senate at N30,000 after nearly eight
years of no increase. And in April 18, 2019; President Muhammadu Buhari
signed the minimum wage bill into law.

Due to continuous campaigns by unions,

politicians, workers and others- for the
immediate implementation of the new minimum
wage, it then begs the question “who exactly are
the minimum wage workers?” They simply are
the least paid employee- in Federal, State,
 THE NEW MINIMUM WAGE AND
ITS IMPLICATIONS ON THE STAKEHOLDERS

Local Governments and private parastatals. And the fact that the minimum
Wage Act is inherently discriminatory, only those employed in the public and
large private sectors - those who constitute the tiniest minority of workers, are
the stakeholders here. For example cleaners, receptionists, security guards,
gardeners, young people between ages 16-24, restaurant workers, blue-collar
workers, etc. Fortunately or unfortunately, it excludes the vast majority of
workers employed in Small and Micro enterprises where employees are less
than ten.

The Nigerian labour union and its leaders

are somewhat living in fantasy-land;
believing in the immediate implementation
of the new minimum wage ordered by the
federal government; under President Buhari.

This is so because, one; passing a Minimum

Wage bill; is not a new development by the
Nigerian government. This has been done in the past, both home and
abroad. So, there will definitely be consequences thereafter that require
adjustments. Two, it was a wrong move by President Buhari to order
immediate implementation of the new minimum wage bill.

This would have been immediately adhered to if he was still a military Head
of State and not a civilian president. According to Vanguard, “Even Federal
Government civil servants would not act on the TV announcement because
the civil service does not work that way. But, labour leaders, acting on
 THE NEW MINIMUM WAGE AND
ITS IMPLICATIONS ON THE STAKEHOLDERS

Buhari's ignorance, started pestering governors. It was an exercise in futility;

a mere temper tantrum.”

Three, President Buhari employs only federal government workers, and so

cannot compel the state government to begin implementation of the new
minimum wage for their workers; or even the local government council
chairmen.

In another vein, one of the popular thoughts held about minimum wage is by
Robert Reich, “The only way to grow the economy in a way that benefits the
bottom 90 percent is to change the structure of the economy. At the least, this
requires stronger unions and a higher minimum wage.”

Considering the fact that an increase in

the national minimum wage affects the
lowest skilled workers, its implications
are far-reaching; on employment,
labour, productivity etc. Here, the pros
and cons will be examined below.

PROS
· With an increase in minimum wage, policy makers are able to address the
stakeholders' demands in combating the rising inequality in the economy. Truth
 THE NEW MINIMUM WAGE AND
ITS IMPLICATIONS ON THE STAKEHOLDERS

is that time is money. So, every level of worker; whether skilled or not, that
devotes at least eight hours to working for an employer should be entitled to a
reasonable take home pay. It should not be heard that they are living in poverty-
the lowest skilled workers, because it would be outright inequality compared to
their highly skilled counterparts.

· It increases earnings for some workers. The minimum wage increase largely
depends on the size and type of firm. Therefore, the stakeholders of minimum
wage increase; the low skilled workers are the ones who gain from the increase.
For instance, the poor and low-income families.

· It also ensures a minimal standard of living in some countries.

- For these young and inexperienced workers; whose labour productivity is

below the minimum standard, they have the opportunity to increase their labour
productivity. Some employers can give these low skilled workers in-service
training to level up to demands.

· Also, some workers would have more responsibilities and experiences added
to their job portfolio. This would be possible as the responsibilities of these
young workers will be combined with those more experienced than them, in a
bid to manage labour costs.

CONS
· An increase in the minimum wage exacerbates unemployment. This is so
because employers would want to minimize labour costs; and as such would lay
 THE NEW MINIMUM WAGE AND
ITS IMPLICATIONS ON THE STAKEHOLDERS

off these low skilled workers instead of increasing their pay.

· Also, there will be much increase in informal employment as opposed to formal

employment. More often than not, when these low-skilled workers are laid-off by
their formal employers, informal employers hire them and it becomes rampant.
In the long run, it would not tell well for the economy as a whole because the laws
and rights that bind formal employment would be minimal, and as such anything
can happen in an informal employment setting.

· Another con of increase

minimum wage is the reduced
i nvestment in employee
t raining. With the laying off of
young, low-skilled workers;
employers will have the
situation of a large reduction
i n investing in training their
staffs.

· It also results in loss of

productive workers. In a bid to minimize labour costs, employers lose a lot of
productive workers; even though they are amongst the low- skilled workers.

·It also causes fewer jobs in the market. Most jobs are eliminated out of the
labour market. Employers also substitute less skilled workers for more-skilled
workers.

·In some instance, an increase in minimum wage causes fewer workers. Some
employers substitute labour for other inputs like capital. At other instances,
 THE NEW MINIMUM WAGE AND
ITS IMPLICATIONS ON THE STAKEHOLDERS

product prices are increased and labour demands reduces.

· Some workers have their hours of work reduced to substitute for increasing
their income. This leads to part-time workers.

· Others find it more difficult to get a job or another job; in cases where they are
been laid off and made to look for work to keep alive.

· Increase in the minimum wage can also increase the number of poor and low
income families. This happens to those workers that lose their jobs and are left
with dashed hopes.

· It most times targets low-wage workers and not necessarily low income
families. So these low income families are not really catered for by the increase
in minimum wage.
 CAUSES AND EFFECTS OF THE DELAYED
IMPLEMENTATION OF THE NEW MINIMUM WAGE

Eight months after the new minimum wage bill was signed into law in April 2019,
there has been drags and drags between Government and labour unions.
Several talks have gone on between the federal government and labour unions
on the implementation of the new minimum wage; and still none have been able
to come to a compromise for the new law to be actualized.

Federal government and Labour unions have kept on pushing blames on each
other; excusing the non-implementation of the new minimum wage.

The Chairman, National Salaries, Income

and Wages Commission (NSIWC) Chief
Richard Egbule, explained that the current
demand of labour would raise the overall
wagebill too high- and so blames Labour
for her unrealistic demands. In his words,
“Labour is asking for consequential
adjustment and government in its wisdom
had made budgetary provision for an
adjustment of N10,000 across the board
for those already earning above N30,000
per month.

“However, the Unions have refused this offer, saying that because of the
increase in the minimum wage from 18,000 to N30,000 was 66 per cent,
therefore they want 66 per cent increment across board. “We told them that the
minimum wage was not raised from N18,000 to N30,000 through percentage
increase but as a result of consideration of economic factors including ability to
pay.

“However, we said that if they want consequential adjustments in percentage

terms, we will use the percentage that when applied will not exceed what has
been provided for in the budget.
 CAUSES AND EFFECTS OF THE DELAYED
IMPLEMENTATION OF THE NEW MINIMUM WAGE

“The computation based on the percentage which the government had given to
labour, was 9.5 per cent from level 7 to 14, including level 1-6 of those salary
structures that did not benefit from the minimum wage.

“One point we keep repeating is, it will be unfair that because you gave the
person earning minimum wage N12, 000, you give a level 17 officer almost
N100, 000 if you apply 25 per cent,'' he said.

Mr Egbule said these during one of the meetings between the Federal
Government and the labour unions, the government proposed a 10 per cent
increment for level seven to 14 and a 5.5 per cent increase for level 15 to 17.

Meanwhile, the Nigerian labour and trade union have reacted severally to the
Federal government's stance. Labour unions in a dialogue with PREMIUM
TIMES over a telephone interview, the national president of the Assosciation of
Senior Civil Servant of Nigeria , Bobboi Kaigama, said the union's stance is that
the committee on special adjustment should be fair to all categories of workers.
He believes the increase is insignificant.

“The NEC noted with dismay the continued delay by the Federal Government
and other tiers of government to implement the new national minimum wage of
N30, 000 as recently enacted.

The National Executive Council (NEC) of Nigeria Labour Congress (NLC)

rejected the delay of immediate implementation of the new minimum wage bill.
According to News Agency of Nigeria (NAN), “The NEC emphatically posited
that the government can no longer hide under protracted negotiations with
workers in the public sector for consequential salary adjustment based on the
new national minimum wage to delay the implementation of the new national
minimum wage.”
 PRIVATE SECTOR PLAYERS AND THEIR FATE
WITH THE NEW MINIMUM WAGE

From past studies and research, facts show that businesses; which I will refer to
as private sector players have devised several different channels for adjusting to
the higher labour costs as a result of increase in the national minimum wage.

However, these adjustsments depends on the sector, the region, and the size of
the firm. So, it is important for governments concerned to prepare for these
contingencies in order to assist businesses know the best that fits their
circumstances.

The first channel to be considered is Absorbing Costs and Accepting Lower

Profit. Ximena V. Del Carpio and Laura M. Pabon, in their Paper Implications of
Minimum Wage Increases on Labor Market Dynamics Lessons for Emerging
Economies say that the “Use of this channel is viable when the sector (and the
particular business) has a high profit margin -for example, in cases where the
labor market is not very competitive (monopsonistic markets), or where the
market for products is not very competitive (oligopolistic markets). Use of this
strategy tends to be less viable in human capital-intensive sectors where
businesses compete globally (e.g. textiles, agriculture, agribusiness).

In some cases, companies may choose to absorb labor costs because they
expect to save money through employee attrition (normal turnover), which would
spare them the cost of selecting and training
personnel.”

The second is Raising Prices, Reducing

Non-Wage Costs, and Lowering Quality.
From studies, the most common response to
a minimum wage increase is an increase in
 PRIVATE SECTOR PLAYERS AND THEIR FATE
WITH THE NEW MINIMUM WAGE

“After very vigorous deliberation on the need to immediately implement the

national minimum wage, the NEC insists that the payment of the new national
minimum wage should commence immediately.”

Nigerian current affairs commentator, Adeniyi Kunnu, reported that "Since April,
you would have expected government to expedite action. I think very strongly
when discussions [for the wage bill] were as its highest, it appeared as if the
government gave it to the people just for political reasons and the fact that there
needed to be some form of consolation going into the general elections that we
had on February 23rd of this year."

He further criticized the Federal government's actions saying that it is a case of

sheer insincerity. "It is characteristic of this administration to more or less parry
very salient issues. When you deal with the people that actually more or less till
the soil of the nation, I think you should address
their issues very importantly," he added.

The delayed implementation has sparked a lot of

unpopularity against the Nigerian government by
its citizenry, and labour unions have not ceased to
strike as a means to channel their grievances
against the government. The inability for
Government and Labour to come to a
compromise has adversely affected the economy of Nigeria, and poverty level
has continued to rise.

On the 18th of October 2019, a resolution was finally reached when labour
accepted a 23.2 percent salary increase for workers on level 07; 20 percent for
those on level 08; 19 percent for level 09; 16 percent for levels 10 to 14 and 14
percent for levels 15 to 17.
 PRIVATE SECTOR PLAYERS AND THEIR FATE
WITH THE NEW MINIMUM WAGE

prices. The use of this channel however, depends on the company's ability to
pass on the costs to its customers in the form of raised prices, reduced non-wage
costs or lowered quality.

Passing on the cost to customers; via increased price is feasible, if the demand
for the products/services is relatively inelastic and if the market is perfectly
competitive.

Price adjustments are seen most often in the hotel, restaurant, construction, and
retail trade sectors, where the profit margins are low (MaCurdy, 2015). Here,
because the market is highly competitive, it is possible to increase price without
the risk of losing business to your competitors.

This strategy is related to effects of inflation.

According to general equilibrium models,
when the minimum wage goes up, price
usually goes up as well. Furthermore, Del
Carpio and Pabon say that “…when
businesses make adjustments in their costs,
they may also make changes in their
employment structure (see the third strategy) and non-wage costs.”

For example, in some cases they trim benefits not required under the labor laws,
reduce health and other insurance, and/or reduce investments in training.
Examples of this strategy include changes in health and pension plans toward
less generous arrangements, elimination of bonuses or benefits related to travel
and meals, and irregular shifts.”
 PRIVATE SECTOR PLAYERS AND THEIR FATE
WITH THE NEW MINIMUM WAGE

According to Del Carpio and Pabon, 2017 in their research paper ”Overall, a
number of studies suggest that introducing or increasing the level of the
minimum wage in the economy increases informal employment for two reasons:
primarily because businesses, when faced with labor costs, choose to avoid
paying social benefits for some of their workers, and also because they have to
lay off workers and much of this manpower is absorbed by low productivity
enterprises that operate in the informal sector.”

The fifth adjustment channel is Upgrading Physical Capital, Technology,

Processes, and Human Capital.

This strategy is quite interesting, though it has not yet been fully studied. Here,
adjustments are made by changing investments to physical capital, such as
machinery, equipment, operating systems, technological solutions, and other
options that replace people with technology.

The idea is that replacing labour/manpower with capital will ensure a better use
of capital and improve productivity. Also, this strategy has included
improvements in the internal management processes of these companies,
which have in turn led to changes in the structure with medium and long-term
effects. However, not all sectors can replace people with technology in the short
or medium term, because, either the cost of purchasing is very high, or the
technology for that specific task has not been developed, or does not have
sufficient liquidity to make the change.
 PRIVATE SECTOR PLAYERS AND THEIR FATE
WITH THE NEW MINIMUM WAGE

The third adjustment channel is Restructuring Human Resources.

Through this channel, businesses not only downsize, they also replace
low-skilled and less qualified workers with people who have more skills and
qualifications, they replace permanent workers with temporary workers, and
outsource or the use of third parties to provide services for their internal human
resource structure.

One of the implications of the use of this relatively new adjustment strategy is that
the labor unit cost improves because businesses can keep their labor costs
relatively stable through outsourcing (Dustmann et al., 2014).

Number four Adjustment Channel is Leaving the Formal Sector, Partially or

Entirely.

This channel involves these private sector businesses going out from the private
sector, partially or entirely; and operating on an informal basis with her
employees who are not protected with labour legislation. Here, informal
employment is prevalent in sectors where productivity is low and human capital-
intensive. It is quite common for developing countries.

However, businesses operating partially on an

informal basis, can decide which employee is
to be assigned formal positions. In theory,
businesses would choose to pay social
benefits to their most productive workers,
whose marginal productivity compensates for
the additional cost (Bosch, 2006).
 VAT INCREASE AND ITS CONSEQUENCES
ON THE MINIMUM WAGE

An increase of the nation's Value Added Tax (VAT) was on the 11th of September
approved by the Federal Executive Council (FEC) from five per cent to 7.2 per
cent and already signed into law by the president.

VAT is a consumption tax payable on goods and services consumed by

individuals, government agencies and business organizations.

According to the Guardian, “Minister of

Labour and Employment, Chris Ngige,
made the disclosure when he received a
team of media workers in Abuja. He
warned that anything to the contrary would
put pressure on state governments
resulting in their inability to offset the
arrears that had begun counting since April
18 this year when the bill was assented to
by the President.” He also disclosed that government would set up a presidential
committee with a view to adjusting the workload of civil servants to come to
measure with their allowances.

Meanwhile, the Nigeria Employers' Consultative Association has said the

implementation of the 7.2 per cent Value Added Tax approved by the Federal
Executive Council will make nonsense of the recent increase in minimum wage.
“The benefits of the recently signed National Minimum Wage of N30,000 would
be neutralised by the proposed increase in the VAT, further reduce the
 VAT INCREASE AND ITS CONSEQUENCES
ON THE MINIMUM WAGE

purchasing power of the citizens, leading to increase in prices of goods and

services, resulting in upward movement of the inflation rate, and further
contraction of the economy,” the Director-General, NECA, Mr Timothy Olawale,
said.

The essence would be defeated and would be worse than when the minimum
wage was increased in 2011, because the inflation rate was not as high as it is
presently.The consequences are that; the purchasing power of the citizens
would be reduced, sales of goods and services would reduce and inventories for
business would be high, and this could lead to closure of businesses that ought
to be supported by government in reducing the alarming unemployment rate and
poverty in the country.

In conclusion, we can draw form this paper that, the increase in the national
minimum wage in Nigeria has a whole lot tied to it, and the bill which has been
passed into law by the president since April has far reaching consequences more
than the 'cry' for its increase. The implementation would not only affect the major
stakeholders of the minimum wage, but the whole of Nigeria- both the private,
public and government workers. What more can we ask for wen inflation looms
on us and steals our economic freedom?

Virtue Edoziem is a Content Creator, Research Assistant and Social Media

Associate at Talents and Skills Africa Consulting.