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Home Opinion Opinion: Before you increase the minimum wage- By Ahmed Adamu, PhD
Opinion: Before you increase the minimum wage- By Ahmed Adamu, PhD

Opinion: Before you increase the minimum wage- By Ahmed Adamu, PhD

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The last increase on the minimum wage was in 2011 during the Goodluck Jonathan’s administration, when the then minimum wage of N7, 500 was increased to N18, 000, and since then, the minimum wage has not been increased. Seven years after, and after increasing inflation, it is justifiable to seek for adjustment. However, before we consider increasing the minimum wage, we have to understand the unique economic situation in Nigeria and the best alternatives to the increase on the minimum wage. Instead of increasing the minimum wage, there are better alternative measures that can help improve the wellbeing of the people of Nigeria, and we will discuss these alternatives in this article. Before then, we need to go through the background and some of the effects of increasing the minimum wage.

How much should be the deserved minimum wage as at today? Going back to 2011, the Consumer Price Index (CPI) was 110.84 and this year’s CPI is 266, adjusting the minimum wage for inflation within the seven years, the minimum wage in Nigeria as at 2018 should be N43, 197.40. A public worker must earn this amount to be able to have a wage of the same purchasing power as the purchasing power of N18, 000 in 2011. In layman terms, a public worker (receiving the minimum wage) would need to receive at least N43, 197.40 to be able to buy the same provisions he used to buy in 2011 with N18, 000. Therefore, the minimum wage of N18, 000 today is equivalent to N7, 500.45 in real value.

Most people would think it is generally good to put more money in the hands of workers, not realizing that more money in the hands of workers leads to increase in the prices of goods and services. “Inflation is primarily caused by an increase in the money supply that outpaces economic growth”. Once the money in circulation is growing at a rate higher than the economic growth, the value for money will reduce. At the time when Nigeria is struggling with two digits inflation rate (11.28%), and achieving steady reduction in the inflation rate, increasing the minimum wage will put inflation rate back to around 20%.

To maintain corporate profits after minimum wage increase, employers must increase the prices they charge for the goods and services they provide, which leads to inflation. Increasing the minimum wage is like increasing the petrol price in terms of its correlation to inflation. Receiving higher income but paying higher bills makes no impact. The dangerous thing in Nigeria is that prices are fast at going up and sticky in going down, and knowing that should make us do everything possible to avoid letting prices go up.

Once the minimum wage is increased, the value for Nigerian currency will reduce, as the goods and services affordable for each unit of Naira will reduce. Similarly, a mere sentiment and perception of traders will push the prices up. Once traders understood that workers have more money in their hands, they wouldn’t hesitate to stretch the buyers’ purchasing income through higher price… Read more

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