Labour and wage increases: Barking up the wrong tree!

By Henry Boyo — President Muhammadu Buhari established a tripartite committee in December 2017  comprising Labour leaders, federal and state government representatives to consider and recommend an appropriate increase in the present National Minimum Wage of N18,000 per month, which became effective from 2011.

However, by October 2018, after protracted negotiations over several months, there was still no agreement, because the state governments had insisted on paying only N22,500, while the Federal Government, conversely “appeared” willing to accept N30,000/month, despite Labour’s initial demand for between N36,000 and N56,000 minimum wage. Nonetheless, Labour has lately also settled for N30,000/month ($84).

Arguably, despite the serial increases in minimum wage from N3,000 ($35) in 1998, to N5,500 ($55) in 2006, before the subsequent increase to N18,000 ($111.0) in 2011, the average real income and purchasing power of Nigeria’s workers, have, regrettably, still failed to match the real value of the N125/month ($290), minimum wage which prevailed in 1981.

The following narrative is a summary of an article which was first published in Vanguard Newspaper in December 2006, with the title, “More money or better value?” Regrettably, Labour leaders have, unexpectedly, still failed on hindsight to learn the important lesson that wage increases may not necessarily translate to and sustain higher purchasing power. Please read on.

“Nigerians and the Labour unions particularly, clamour inexplicably for optically larger incomes rather than sustain the demand for relative stability in the purchasing value of their incomes. Instructively, the naira was once equal to the British pound sterling, while $1 exchanged for about 50 kobo before 1976. It was also uncommon for Nigerians, resident or studying abroad, to send money back home to Nigeria, as supplementary income for dependants back home.  Indeed, the dream of most Nigerian youths, who travelled abroad, at that time, was to return to the comfort of home and friends and ‘better life’ in Nigeria.

Today, the number of Nigerians who can educate their children abroad from income derived, strictly, from legitimate wages or enterprise, as opposed to the proceeds of treasury looting and other such corrupt engagements, has diminished significantly. Worse still, impoverished as we are, we make heavy sacrifices to train our children, from very limited resources, only to turn them out, thereafter, into a jobless market, which ultimately propels some of them to seek extremely mean jobs abroad as greener pastures!  But who cares? Those youths who can make it either legally or illegally via perilous desert routes and shark-infested open seas, may ultimately become benefactors to their increasingly impoverished and helpless families in Nigeria. This desperation of our youths ‘to check out’ has gradually spiralled, over time, with the steady loss in the naira’s purchasing power!

There are basically two main ways in which a country’s currency can lose value; these are by an uncontrolled inflationary spiral (unabating rising prices of goods and services over time) and/or by steady depreciation or an actual formal devaluation by the respective monetary authorities!  In our case, both factors have conspired to deflate the naira and wreak havoc on our value system, our lifestyle, and our hope and aspirations.

Consequently, as the naira continued to depreciate from stronger than parity (N1=$1) to its current rate of N130=$1 (2006), the implication is that an average family with N10,000/annum income before 1980 would invariably require a minimum wage of N1,300,000/annum to sustain their accustomed lifestyle in 2006. The gargantuan fall in income values is partly responsible for the devastation, caused by spiralling inflation over the last 25 years. For example, a bag of rice which cost less than N20 in 1980 now costs over N7,000 (2006); a finger of plantain which cost less than 10 kobo now costs over N20.  Consequently, an average Nigerian family, would require over N2m in 2006 to maintain the same lifestyle sustained with less than N20, 000 in 1980. Pray, after the decimation of the middle class by the evil twins of devaluation and inflation, how many Nigerians currently earn N2m annually in 2006? Various administrations have often been compelled by intense pressure, from Labour unions, to pump up quantum salaries paid to workers to marginally ameliorate the ravages of a currency with a steadily diminishing value. However, it is clear that a yawning gap continues to exist between the higher numerical wage levels and the reduced quantum of goods and services and lifestyles that people’s income can actually afford.

In order to bridge the widening gap between bloated wage packets and dwindling purchasing value, the Federal Government approved a 15 per cent wage increase in December 2006 for all civil servants with effect from January 2007, to provide some relief (The Guardian, December 20, 2006, Pg.5). Notably, however, under normal circumstances, any attempt to bridge a poverty gap caused by loss in purchasing power of incomes would be welcome, but in a situation where, already, the monetary authorities fervently decry the unyielding oppressive and distortional presence of surplus money supply (otherwise known as excess naira liquidity) in the system, and the additional inflationary threat of an inevitable rise in petrol price (with the notice of reduced subsidy indicated in 2007 budget), plus the equally legitimate pressure for government to spend much more to improve decayed infrastructure, it may be a pipe dream to expect that the recently approved bigger quantum salaries will bring succour to naira income earners.  Although any increase in minimum wage will invariably increase wages and salaries nominally, the collateral loss in naira purchasing value due to an acceleration in inflation rates will, as usual, ultimately leave a majority of our people poorer than they were before!

I never cease to be amazed that in spite of this recurrent cycle of increasing salaries and income and the consequent abiding poverty, Labour unions never cease to clamour for quantum elevations rather than demand that the real value of their income be sustained or increased such that the same income will have the same or better still, more and more value rather than less and less overtime!  Sadly, Labour leaders seem blindly enamoured by the theme of the bigger the better, but they consistently fail to see that less could command better value!

I have advocated in several articles, on this column, that the naira in our pockets can and will buy more, if the value of the naira is not compulsively consciously debased by the CBN’s unilateral conversion of our export dollar earnings into naira before allocation to the three tiers of government.  The need to consolidate the required naira sums from the money market as well as the additional currency printed for this purpose remains the bane of our monetary system.  So long as the system which allows the CBN to continue to intermittently auction dollar rations, in a market that is, undeniably, awash with excess naira supply, invariably, the naira will remain under pressure and will inevitably depreciate even when external reserves are conversely rising. This has been our reality for decades! This is an economic paradox, if ever there was one!”

Conversely, if the CBN is compelled to release its stranglehold monopoly on the supply side of the foreign exchange market, with the allocation of the dollar component from the distributable federation pool with negotiable dollar certificates to recipients, the naira will quickly consolidate and strengthen below N50=$1, as increasing dollar values will chase relatively limited naira supply. In such an event, all the economic policy shenanigans which have brought additional suffering to the masses will evaporate, while inflation may drop as low as one per cent and push down interest rates. Furthermore, it will also become cheaper for businesses to borrow with interest rate, mechanically trending well below seven per cent i.e. the requisite parameters for real growth in a sensibly managed economy. The authorities and Labour leaders know this, but the watchword is for self rather than communal interest.  Heaven help us!”

Show More

Related Articles

Back to top button