Labour unions demand N56,000 minimum wage

Punch reports:
The leadership of organised labour unions, last week, presented a new demand for N56,000 as monthly minimum wage, to the Federal Government. The President of the Nigeria Labour Congress, Ayuba Wabba, told a news conference last week, in Abuja, that even though it was true that the economy was not doing well, the law has stated that wages for workers must be reviewed after every five years. Consequently, the Labour Lord insists that since the last wage review was in 2011, “the issue must be looked into by the Federal Government and workers should not be seen as sleeping on their rights.” However, a triple increase in income, in one fell swoop, may seem inappropriate when several state governments are presently unable to pay the current N18,000 minimum wage.

Ayuba, however, explained that the “logic behind the new minimum wage is to ensure that no worker earns below what can sustain him or her for a month.” Nevertheless, despite their apparent resolve, it will not be unexpected, if ultimately, after heated and protracted negotiations, labour unions, patriotically, accept between N30,000 and N36,000 as the new minimum wage. However, the impact of such an increase will regrettably, most certainly, cripple the economies of several states, as the resultant simultaneous salary increase of such a magnitude for all staff cadres will double the already, heavily lopsided recurrent budgets, and increase states’ debt burden to further diminish any prospect of impactful infrastructural development.

Ironically, however, despite an extended backlog of unpaid salaries, Ayuba has advised government to ensure that the issue of national minimum wage increase “was urgently taken on board as a way of fighting corruption in the country”, because, according to him, “if employers fail to cater for their workers’ welfare adequately, it will be difficult for such an employer to fight corruption”! Unfortunately, Ayuba’s prescription against corruption has continued to be blatantly ignored in several states, without any sanction, despite the subsisting Act for N18,000 minimum wage.

Incidentally, the nexus between minimum wage levels and corruption is such that, even if the seemingly resistant ghost population, in public service is halved, the remainder 50 per cent “ghosts”, who may “survive” the cleansing will invariably also have their incomes more than doubled, if minimum wage is increased as proposed. However, the preceding narrative does not suggest that minimum wage should remain static, particularly with the evidently wasteful and brazen corrupt application of public resources by government at all levels.

Indeed, as Ayuba observed, “the purchasing value of the present N18,000 wage was equivalent to about N110?= $1 in 2011”. Sadly, with the present exchange rate of N200-N300=$1, the existing minimum wage of N18,000, has fallen below 50 per cent of its dollar value five years ago. Furthermore, with average annual inflation rate of about eight per cent, minimum wage earners may barely have the capacity to buy 60 per cent of the purchasing power equivalent of their incomes in 2011.

Invariably, high inflation significantly reduces consumer demand, discourages domestic production and ultimately fuels an already combustible unemployment rate, with unsavoury social consequences. Unfortunately, the very high cost of borrowing, which is irrepressibly instigated by an albatross of surplus naira supply, will ultimately restrain the real sector’s capacity to create jobs and produce goods that are price/quality competitive for export. Nonetheless, even if Labour succeeds in negotiating a higher minimum wage, it will be a challenge to enforce compliance nationwide, particularly if state finances remain relatively paltry and profligacy abides as a culture in governance.

Conversely, if by some strokes of good fortune, increasing revenue becomes available to make payment of N56,000 minimum wage feasible, the joy of such a victory will be quickly threatened by a rise in the general price level. The inflation rate may exceed 20 per cent from the already volatile, current spring board of 12.8 per cent. In such an event, even a N36,000 minimum wage, for example, may lose over 90 per cent of its present purchasing power after five years, and invariably trigger another tortuous train of negotiations for a new minimum wage. Indeed, if inflation spirals unrestrained, the naira will increasingly become worthless as a currency and will induce increasing demand and adoption of the dollar/yuan as a safer store of value.

Instructively, reprieve from this cyclical bondage may however come, only if inflation can be tamed to best practice rates below three per cent.
Unfortunately, however, the significant increase in money supply, inevitably caused by a “modest” 100 per cent rise in public sector wages would, however, make such fine achievement in monetary management impossible. Furthermore, any significant increase in money supply would also quickly compel the Central Bank of Nigeria to step up its compulsive counterproductive borrowings, to remove part of the bloated naira values from the financial system and restrain inflation. Unfortunately, this process also instigates higher interest rates and similarly crowds out the real sector from ready access to the cheap funds that are necessary for expanding domestic production and creating jobs, while the funds mopped up with such oppressive cost inexplicably remain sterilised in the CBN vaults!

Painfully, this bizarre cycle has predicated our economic misfortunes for so long. Thus, it was inevitable that our economy tottered endlessly while the level of unemployment continued to rise, even when we flaunted huge foreign reserves and sustained more credible domestic debt levels. Consequently, Labour should recognise, from the preceding narrative, that the joy of a substantial increase in minimum wage will be short-lived, and increasingly sporadic wage demands will again become regular, if the high inflation rate sustained by persistent and increasingly excess money supply remains untamed.

Unfortunately, organised Labour’s leadership remains rooted in the classical mode of regular agitations for wage increases, notwithstanding the disenabling collateral impact of such demands. However, it is now expedient for Labour to also carefully examine how countries with larger, and more successful economies manage inflation below two per cent to conserve the value of all income earners and also sustain the tempo of consumer demand that will steadily drive growth. Labour will also need to interrogate why it is seemingly impossible to bring cost of borrowing well below 10 per cent to facilitate real sector growth, job creation and export competitiveness.

In reality, successful economies everywhere sensitively manage money supply to ensure that excess money supply does not become pervasive to trigger inflation. In fact, in such money markets, commercial banks may pay a penalty fee to their Central Banks to warehouse their surplus funds.

Furthermore, productivity is also encouraged in prosperous economies with very low interest rates which will drive real sector growth. Unfortunately,

Labour has never shown any interest in identifying why the CBN has consistently failed to effectively manage naira supply, to power economic growth as in prime economies elsewhere, especially when, the apex bank does not deny that the monetisation of distributable dollar revenue (read as unilateral substitution of naira for dollar denominated revenue) is actually the primary cause of persistently excess naira, with its train of disenabling monetary indices, such as, unusually high inflation and interest rates and a weaker naira (see Monetary Thrust Statement of Vision 2020).

Conversely, astute, best practice liquidity management, particularly in the forex market will gradually strengthen and sustain the naira below N100=$1. In such an event, the present N18,000 minimum wage will command double the current dollar equivalent and become equal with purchasing power of N36,000 today, without any wage increase or negotiations. Fortunately, liquidity can become better managed when the CBN breaks its stranglehold monopoly in the forex market and ceases to auction the dollar for the highest naira bids.

- Rexinews

- The Punch