Economic Confidential, May, 2009

FEATURES

Labour and Minimum Wage Expectations

By Les Leba

Advocacy for increased wages will perhaps remain eternal in the struggle of organised labour. Thus, expectedly the speeches made by Labour leaders all over the country last Friday, May 1st 2009 touched on the demand for a reasonable minimum wage that would give some measure of dignity to their rank and file. Indeed such demands are not peculiar to Nigerian workers as inflation generally gallops ahead of wage levels over time leaving income earners with lower purchasing power.

What is, however, striking in the Nigerian experience is the significant magnitude of increase being demanded.  In most countries in the first world, workers in different industrial or service subsectors may demand for increases in the hourly wage rates of between 2-20% from time to time, but it would be rather unusual for such demands to approach 100% of current incomes or wage rates. The relatively modest increases in such economies may be the result of a number of factors, ranging from the superior bargaining strength of organised labour or the enlightened recognition by employers of labour that they will get the service of monkeys if they paid peanuts!

The low level of unemployment, usually below 5% in most developed countries also ensures that workers have a greater choice as employers of labour jostle for the best hands.  Besides, a social safety net that guarantees a subsistence income for those unemployed ensures that desperation for survival does not force one to accept just any offer!

A look at the Nigerian labour market, however, reveals a completely different picture as all the above checks and balances which keep labour’s wage demands at relatively modest levels are defective or even completely absent. For example, while first world economies would consider it as crisis to have unemployment above 5%, the Nigerian leadership glibly confesses to an unemployment rate of over 50% i.e. over 70 million idle citizens with over 40 million of these as restive youths. We are further informed by the same federal executive that over 6 million youths are released into the job market every year and possibly less than 10% of these are likely to secure jobs!

The reality that this bulging army of unemployed have no formal social welfare net further compounds an already critical situation, such that desperation becomes a constant albatross amongst the unemployed and any job may be accepted even if the relative remuneration is below subsistence level!

It is easy to understand how the general wage level can quickly fall way behind the rate of inflation in a labour market such as ours. The situation is certainly aggravated when the government sets the destabilisation and emasculation of labour organizations as a conscious objective! The foregoing factors and the pauperizing effects of Naira’s devaluation overtime have evolved the current abysmal minimum wage level of N7,500/month or more graphically expressed as $50 per month; where $50 is less than the monthly cost of mobile phone recharge cards for most students abroad! Thus, a gate man who spends up to 10 hours everyday at his duty post everyday for a minimum of 25 days a month will earn barely enough for a month’s recharge card abroad for an under aged dependent! The same sum of N7,500 expressed in our local context is less than the cost of one bag of rice or 4 bags of cement! We must not forget that this same amount is required to feed the security man, his wife and possibly 2-3 children, and still leave a surplus for school fees, transport to and from work and school as well as payment for rent and other utility bills!

It is not surprising, therefore that in the light of the huge disparity between income and basic survival expenses, organised labour have demanded not just a 5-10% increase in minimum wage rate as is traditional with wage negotiations abroad, but what appears to be a staggering 600% upward review of the current minimum wage. Once again, to put this demand in stark relief, the N50,000 minimum wage is currently less than $400 a month, which is possibly the cost of fuelling a car for an average family in Europe or the United States.

However, Labour and indeed those Nigerians with a social conscience would agree that N50,000 is appropriate as minimum wage in our social and economic environment.  But in reality what would be the consequences and impact of the adoption of this minimum wage level. First of all, we must recognize that this sum will only continue to be adequate if all other things remained equal, in other words, inflation would remain at a stable level, Naira rate of exchange would also remain stable and must not suffer subsequent devaluation or contrived depreciation, fuel prices must remain stable and certainly not rise, public schools and hospitals will continue to be subsidized and be better funded and adequate portable water supply will continue to be publicly provided at concessionary rates. Any significant change in any of these variables will begin to threaten the adequacy of the minimum wage of N50,000 and we may sooner or later return to square one, where the new rate of N50,000 can only purchase those goods and services that the erstwhile paltry N7,500 could buy! In other words, we would have been involved in a myriad of actions without any forward movement! We will recognize the reality of such a possibility when we recall that the old minimum wage of N250/month in the early 1980s certainly commanded the value of more goods and services than the latter day minimum wage of N7,500/month.

However, for the sake of argument, let us assume that by some ‘magic’ the government can keep all the above variables stable or favourable and that labour by threat of strike or any other such instrument of coercion, including benign advocacy achieves the minimum wage of N50,000!

The next pertinent question is how the government will fund the payment of this sum. We must remember that the N50,000 is a minimum wage and consequently all other wages from level 01 to level 22 or whatever the highest job level in the civil service may be will have to be adjusted accordingly.  The obvious result with the inbuilt differential steps for each job class responsibility will be at least a six fold increase in the salary and emolument votes at all levels of government.

However, we recall that salaries and other recurrent expenses already account for up to 70% of the budget of governments at all levels leaving very little after deductions for inflated contracts and corruption, for capital or infrastructural development expenses. Thus a six fold increase in salaries and civil servant emoluments will wipe out any prospects of capital development and still create a huge deficit in recurrent spending against potential revenue. Of course, a rudderless administration can resort to borrowing to fill the huge gap, but we all know the ultimate consequences of borrowing strictly for consumption purposes; besides the government may find very few investors who are inclined to lend to government strictly for the purpose of consumption because of fear of the capacity of government to repay!

The only way for such short sighted administration will be the easy way out i.e. print more Naira!! We needn’t waste too much time in explaining the consequences of such an obtuse solution, all we need do is to countenance the impact of such action on Zimbabwe’s economy!

Ultimately, a minimum wage of N1,000,000,000 (N1 billion) may not buy what the current N7,500 can command and labour may ask at that time that minimum wage be increased to N7bn/month while infrastructural and human capacity enhancement would remain at a frightening stand still!

So if multiple quantum wage increases as demanded by labour will bring in its train adverse consequences as outlined above, then what is the way out of the quagmire? The answer to this million dollar question is generally simpler than expected! Thus, since high quantum increases could actually make the wage earner and the economy worse off, then we must consider the relevance of less income actually buying more! In other words, if N7,500 could buy what ultimately N50,000 (or currently about $400) would buy, without the destabilising effect of multiple quantum wage increases, then it may be better to demand that the current N7,500 should be structured to buy more by improving the value of the Naira! Thus the stronger the value of the Naira for example to say N15 = $1, the sum of N7,500 will buy what $500 currently commands in our economy and indeed worldwide!

As a corollary, inflation rate will fall from the current over 14% to possibly 2-3% with beneficent impact on purchasing power of our currency. “But this is a pipe dream”, some critics would say!! The answer of this column to such negative reaction is NO, it is not a pipe dream; we have challenged our government and monetary authorities to create a level playing field for the Naira rate by allowing market demand and supply mechanism to determine the real rate of the Naira against dollar.

In other words, the Central Bank (CBN) should release its stranglehold on the supply of our export dollar earnings and ensure that the constitutional beneficiaries of the federation pool are paid with dollar certificates, but “strictly not cash”, for the dollar component of distributable revenue!! The result will be not only a stronger Naira, but interest rates will tumble to single digit and stimulate industrial growth and employment; petrol prices will fall dramatically, with the attendant savings of over N800bn current payout to fuel importers as subsidies and an additional amount of possibly N800bn can be garnered as a modest petrol sales tax on the much lower petrol prices and this sum would become available for the enhancement of our infrastructural deficit.

In addition, governments’ capital expenses fund will be supplemented by at least another N300bn saved from the current payment of interest to commercial banks for the questionable benefit of government’s unceasing mop up of so called excess cash or liquidity from the money market at a time that responsible governments everywhere are exploring ways of pushing funds into the system rather than removing funds at such costs!

This column identifies with labour and considers organised labour as a friend and for this reason we have gone to this length to paint the above reality.

A stitch in time, they say, saves nine!

SAVE THE NAIRA, SAVE NIGERIANS!