New Minimum Wage Threatened as Inflation May Get Uncontrollable – Economists
Navigating Economic Challenges: Assessing the Impact of Potential Minimum Wage Increase in Nigeria.
In response to the escalating inflation rate of 28.92%, President Bola Tinubu has initiated a committee to determine a new minimum wage for Nigerian civil servants. However, concerns arise among economists as the implementation of a substantial wage increase may exacerbate economic challenges.
President Tinubu aims to establish a minimum wage that satisfies all stakeholders, but economists warn that such a move could contribute to over 50% inflation, especially with the daily widening of the naira exchange rate against international currencies.
The World Bank’s definition of the international extreme poverty line at $1.90 per day raises questions about the adequacy of the current minimum wage. At the current exchange rate of N1,520/$, a N30,000 monthly wage falls significantly below the poverty line, emphasizing the need for a substantial increase.
If the committee adopts the World Bank’s standards, the recommended minimum wage would be at least N84,474, given the current exchange rate to the dollar. This adjustment could inject N85 billion into the economy monthly, totaling N1.02 trillion annually, considering the 1.7 million-strong civil service workforce across states and the federal government.
However, economists caution against overlooking the potential consequences of such a wage increase. Without concurrent productivity improvements, the government may resort to printing or borrowing money excessively, leading to demand-pull inflation.
Veteran stockbroker Professor Tayo Bello suggests that while higher wages may initially improve workers’ purchasing power, there’s a risk of inflationary pressures. Dr. Tosin Olaleye adds that small and medium-sized enterprises (SMEs), comprising over 96% of businesses in Nigeria, may struggle with increased wage costs, potentially leading to layoffs and business closures.
Special Advisor Dr. Jumoke Oduwole highlights the significance of the 39.7 million MSMEs, constituting 96% of businesses and 88% of jobs in Nigeria. Financial economist Dr. Nelson Nkwo emphasizes the need for complementary policies, such as tightening monetary policy and supporting affected businesses, to manage potential negative effects.
Dr. Emeka Okengwu suggests focusing on a living wage that considers energy costs, education, and the cost of food and healthcare. He emphasizes the importance of productivity and warns that the wage increase may only impact a small percentage of Nigerians in paid employment and the civil service.
The Anker Reference Value Update for Rural Nigeria 2023 suggests a Living Income of NGN 232,948 (USD 383) to maintain a basic but decent standard of living, factoring in inflation. However, stakeholders, including Moses Igbrude and Professor Tayo Bello, assert that addressing the underlying problems in productivity, especially in agriculture and manufacturing, is essential, as an increase in the minimum wage alone may not offer a lasting solution. They emphasize the need for measures to curb inflation and stabilize the naira’s value.