Abstract
This research work investigates the impact of minimum wage
fluctuation on growth of Nigeria economy. Determinants of
labour market in Nigeria arising from the economic
transformation in recent years, and how public policy affects
in particular labour market outcomes. The result has shown
that increase in minimum wage increase by l unit (1 million),
increase real gross domestic product by 0.038million.
Similarly, an increase composite consumer price index in by 1
unit (1 million) reduced RGDP by -55.063 (million) Increase in
per capital income by I unit (1 million) increase RGDP by
4788.060million. Also increase in labour forces by 1 unit (1
million) reduced RGDP by 0.005million while increase in
inflation rate by 1 unit (1 million) reduced RGDP by 0.035.
This is in conformity with the theoretical expectation, since it
believes that increase in minimum wages and per capital
income supposed to increase the real gross domestic product
of the country. And that, per
1.1 BACKGROUND OF THE STUDY
Income policy is usually used as a principal component of
welfare boosting and poverty reduction macroeconomic policy
framework in Nigeria. Minimum wage (hereafter MW)
legislation is a major income policy readily employed in this
regard. Although MW policy has both negative and positive
effects on the overall economy, policy makers, especially
politicians, have used it more often for political purposes than
for socio-economic reasons. MW legislations in the country
have been preceded by high inflation rates that erode
purchasing power and bring reduction in welfare (Adams,
1987). Consequently, the need for MW legislation, which
normally leads to a rise in nominal wage, is justified as a
means of adjusting wages and salaries to match with the rise
in costs of living.
It is, however, notable that wage increase brought about by
MW is usually counter-productive. Apart from leading to a rise
in general price level, wage increases, are always followed by
10
threat of reduction in government workforce, and in some
cases, such threats have resulted into massive laid-off in the
civil service (Olaleye, 1974; Owoye, 1994). Also, wage
increases in Nigeria do not match up with the rate of increase
in prices. As a result, there are always agitations from the
labour unions for persistent wages and salaries increase. This
regular call for rise in wages is at times based on the wide gap
between public sector?s and private sector?s wages. The gap
between public sector?s and private sector?s wages has often
been given as one reason for the inefficiency and corruption in
the public sector. It is argued that public sector workers
deserve adequate compensation commensurate with their
labour, in other to bring about efficiency (Obasanjo, 1999).
In view of the above, many stakeholders, particularly the
labour union organisations, have severally called for wage
indexation. However, given the problem with wage indexation,
government has found a convenient means of raising wages
by setting up Wage and Salary Commissions (WSCs) over the
years. Although WSCs are meant to provide a wide-raging
11
solution to civil service problems, increment in wages and
salaries is normally embedded in the recommendations of
such commissions.
Inspite of the differing effects of MW legislation, its
macroeconomic impact has found little interest in empirical
study in Nigeria. Although there are sample studies that have
tried to examine the impact of MW in an economy across
different parts of the world, such studies have often employed
a partial analysis, with focus on specific economic effects of
MW in the economy. As pointed out by Adams (1987), the
impact of MW could only be adequate captured within a
macroeconomic model framework. This study, therefore,
analyses macroeconomic effects of MW using a computable
general equilibrium (CGE) model. The static CGE model
developed in the paper allows for an analysis of the impact of
MW across several sectors and variables within an economy.
In particular, the study examines the impact of MW policy on
household income, consumption, general price level,
productivity (output), employment and government balances.
12
1.2 STATEMENT OF THE PROBLEM
The recent warning strike embarked upon by the organised
Labour to demand increase in wages has ignited widespread
debate on the place of the Nigerian worker in the economic
scale of the country. „Though organised labour eventually
called off its three-day warning strike, many have continued
to question the much-taunted democracy dividends. Emeka
(2011) in this report takes an overview of the demand of the
workers for N18,000 minimum wage in comparison with what
political office-holders earn and its attendant effect on the
economy.
According to observers, the place of the common man in
Nigeria?s governance strata has remained a question mark on
successive administrations. While workers in every facet of
the economy labour night and day for paltry sum to survive
the prevalent harsh economic conditions in the country, the
political class is perceived to squander the national resources
without care. As if to give vent to this school of thought, the
joint government-Labour-Employer negotiating team chaired
by retired Chief Justice of Nigeria (CJN), Alfa Belgore, set up
13
by government had drafted a new minimum wage bill. The bill
reflected the agreement reached between government and
Labour as agreed by both parties, but government feigned
ignorance of such agreement.
The committee had, while presenting its report to the
Secretary of Government of the Federation (SGF), Ahmed
Yayale, in Abuja noted that the N 18,000 minimum wage
would not lead to inflation as being canvassed in some
quarters.
“The Tripartite Committee on National Minimum Wage has
recommended a national minimum wage of N18,000 per
month for all establishments in the public and private sectors
employing 50 workers and above,” Belgore stated. “The
committee met severally and consulted widely. It further took
cognisance of the need to ensure that the outcome of the
exercise must be growth-propelled in terms of GDP growth
rate. “It also considered its capability of promoting rapid
socio-economic transformation of the country, which will not
lead to inflation spiral. The objective is aimed at alleviating
14
poverty in the country as well as maintaining macroeconomic
stability.” Belgore (2010) also suggested that to make the
recommendations effective, the extent National Minimum
Wage Act 1981 and its subsequent amendments of 1990 and
2000 should, be repealed with a new wage act. Leadership of
the organised Labour had hinged their warning strike on the
fact that government refused to heed agreements reached with
it after widespread consultation. General Secretary of the
Democratic Socialist Movement (DSM), Segun Sango, had
noted, irrespective of the fact that the National Assembly had
expressed its willingness to give the bill accelerated passage
that government failed to submit to the legislators. Even some
analysts have thrown their weight behind the Belgore
committee, describing demand for wage increase by Labour as
justified.
There is the need to adopt a systematic approach regarding
such matters. In most progressive countries of the world, the
wage increase index is linked to the rate of inflation,” Chizea
(2010) advised. “The thinking is that the government must be
15
proactive in catering for the welfare of workers. If salaries lag
way behind increases in the rate of inflation, then there will
be erosion in the quality of life of the generality of the workers.
Therefore periodic wage increases is very much part of an
effective salary administration.”
Chief executive officer, Global Analysis Derivatives Limited,
Tope Fasua, while acknowledging that wage increase does not
hold eternal emancipation for workers anywhere in the world,
noted that it is important for government to pay living wages.
“There is no way wage increases can lead to the eternal
emancipation of workers anywhere in the world. The effect will
at best be a temporary reprieve until prices catch up with the
new wage levels,” Fasua (2011).
“That said, it is important to note that the Nigerian
government and companies need to pay living wages to their
workers. I think that is what Nigerian workers are demanding.
It is important to note that the world over, at best only 10
percent of the population of any country can be said to really
be financially emancipated.
16
“The situation is worse in developed countries where people
merely live from one salary to another, while worrying about
the huge overhang of debt that they have been pressured to
acquire as a result of the wrong economic paradigm of
capitalism which their countries believed in.” But there are
others who argue that wage increase may have adverse effect
on the economy. Therefore, the research will focus on impact
of minimum wage fluctuation on growth of Nigeria economy.
1.3 OBJECTIVE OF THE STUDY
The broad objective of this study is to evaluate the impact of
minimum wage fluctuation on growth of Nigeria economy .The
specific objectives of the study include to:
i) To evaluate the effect of minimum wage fluctuation on
economic growth in Nigeria
ii) To determine their adequacy minimum wage in the light
of the current economic realities and cost of living index as
it affects the economic growth of Nigeria.
1.4 JUSTIFICATION FOR STUDY
At the intellectual levels the study examines some alternatives
or contending paradigms on minimum wage fluctuation in
17
particular, econometrical and empirical underpinning and
resulting conclusions as investigated by several researchers.
In this regard, the study is regarded as a cornucopia of
authoritative information on the subject matter, both in term
of wealth of data as well as its analytical insights. It is hoped
that the study will appear to a wide variety readers including
not to current but future economic policy decisions makers
and planners to enhance their decision making ability but
also to student of economics, finance, business
administration and cognate endeavors but also researchers
who will find as a germinal contribution and stimulant of
further researcher in the field.
1.5 RESEARCH HYPOTHESES
1. Ho: there is no significance relationship between
minimum wage increase and economic growth in
Nigeria
Hi: There is significance relationship between
minimum wage increase and economic growth in
Nigeria
18
2. Ho: There is no significant relationship between
minimum wage increase and fluctuation in
composite consumer price index
Hi: There is significant relationship between
minimum wage increase and fluctuation in
composite consumer price index.
1.6 SCOPE OF STUDY
This study uses data set covering a period of twenty-nine (29)
years from 1980-2010. Central Bank of Nigeria (CBN)?s
Statistical Bulletin which is the main source of data used in
this research. A long period of study like this will provide an
insightful behavioural characterization of minimum wage
fluctuation on the growth of Nigeria economy.