Does an increase in the minimum wage automatically guarantee a better life?

When economic instability disrupts the initial equilibrium, a new balance emerges, often driven by factors like inflationary pressure and exchange rate volatility. In response, governments may consider adjusting minimum wages to help workers maintain their welfare levels.

However, while this adjustment aims to address immediate concerns, it’s crucial to question whether it automatically translates into a better life.

In this context, a “better life” encompasses various aspects beyond just income, including access to essential services like healthcare, education, and housing, as well as opportunities for personal and professional growth.

A higher minimum wage certainly offers a glimmer of hope, but it’s true impact on the overall well-being of workers is far from guaranteed. It’s a delicate balance influenced by various factors such as the cost of living, the strength of the social support system, and the availability of economic opportunities.

These factors collectively shape the social fabric of society, exerting significant impacts on poverty alleviation, income inequality, and overall societal well-being.

“By increasing the earnings of low-wage workers, minimum wage policies strive to address this imbalance by ensuring that workers at the bottom of the income distribution receive a fairer share of economic gains.”

Some advocates argue that by providing low-income earners with higher wages, minimum wage adjustments offer tangible benefits that extend far beyond the realm of individual finances.

For many individuals and families living on or below the poverty line, an increase in wages can mean the difference between struggling to make ends meet and achieving a modest level of financial security.

Higher wages enable these individuals to afford basic necessities such as food, housing, and healthcare, thereby reducing their reliance on government assistance programmes designed to provide support to those in need.

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Moreover, minimum wage adjustments have the potential to mitigate income inequality by narrowing the gap between low-wage workers and higher-income earners. In many societies, income inequality has reached alarming levels, with a disproportionate share of wealth concentrated in the hands of a small percentage of the population.

By increasing the earnings of low-wage workers, minimum wage policies strive to address this imbalance by ensuring that workers at the bottom of the income distribution receive a fairer share of economic gains. This not only promotes greater social equity but also contributes to a more balanced distribution of wealth and resources across society.

In Nigeria, the story of minimum wage hikes paints a stark picture of unyielding poverty despite efforts to boost earnings for low-income earners. Over the past years, minimum wages saw an increase from N18,000 to N30,000 between 2011 and 2018, spanning a staggering seven years.

Yet, the poverty level stubbornly persists, casting doubt on the efficacy of wage adjustments as a panacea for poverty alleviation.

According to surveys conducted by the Nigerian National Bureau of Statistics (NBS), the poverty rate has shown only marginal improvement, with a mere 2.5 percent decrease from the alarming 69 percent recorded in 2010.

Astonishingly, around 112.52 million Nigerians, constituting 67.38 percent of the population, continue to grapple with poverty, struggling to meet basic needs and attain a semblance of financial security.

Yemi Kale, who by that time was the Statistician General of the Federation, provided a sobering analysis of the living standards in Nigeria, revealing distressing figures that underscore the gravity of the situation.

Despite efforts to address relative and absolute poverty, the reality remains grim, with poverty rates soaring to 71.5 percent by the end of last year. The relative poverty measurement, which gauges living standards in comparison with others in society, surged from 54.4 percent in 2004 to a staggering 69 percent in 2010.

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Even with the subsequent minimum wage increase in 2018, poverty continued its relentless march, with 39.1 percent of Nigerians still living below the international poverty line of $1.90 per person per day, as per World Bank reports.

This glaring disparity between wage adjustments and poverty levels raises crucial questions about the effectiveness of government policies in tackling poverty. Despite increases in minimum wages, the gap between the rich and poor remains wide, with millions of Nigerians trapped in a cycle of deprivation and hardship.

The failure of minimum wage adjustments to stem the tide of poverty underscores the need for a comprehensive approach to address systemic issues plaguing the country. Merely raising wages without addressing underlying economic challenges and structural inequalities is akin to applying a band-aid to a gaping wound.

In the real world, the effectiveness of minimum wage adjustments boils down to one crucial question: Can they keep up with the relentless surge in living expenses?

If prices skyrocket faster than wages can catch up, even a pay raise might not be enough to shield workers from financial strain. After all, what good is a higher paycheck if it barely covers the essentials?

Yet, let’s not overlook a harsh reality: continually hiking up minimum wages in response to the cost of living can feel like pouring gasoline on a blazing fire. It’s a short-term fix that risks fueling inflation and exacerbating economic instability.

Instead, perhaps the true solution lies in government intervention to mitigate the rising cost of living, thereby easing the burden on workers without igniting further economic woes.

As a recent conversation around minimum wage hikes continues to gain traction in Nigeria, questions arise about their efficacy in securing a better life for workers.

For organised labour, chiefly the Nigeria Labour Congress and Trade Union Congress, N615,000 ($512) is the minimum wage that could guarantee a good life for the citizens.

They based their arguments on the increased cost of living, adding that at N9,000 per day, a person is expected to spend as much as N270,000 in 30 days. Each worker is also projected to spend as much as N110,000 every month on transportation.

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Nigeria’s minimum wage, the standard for worker compensation in Africa’s fourth-largest economy, has long stood at N18,000 for seven years. However, in 2018, it saw a significant increase to N30,000. Remarkably, this amount has remained unchanged for the past six years, serving as a crucial benchmark for wages across various sectors of the country.

Nevertheless, despite this raise, the minimum wage has remained fixed at N30,000 for the past six years. This static state has sparked discussions regarding the sufficiency of this wage in addressing the evolving needs of workers amid economic transformations and fluctuations in the cost of living.

Adding to the complexity, when considering an average exchange rate of N1,300 to a dollar, derived from last week’s average volatility rate according to the FMDQ data, a Nigerian worker takes home a mere $23 at the conclusion of 22 working days.

This figure underscores the stark reality faced by many workers, highlighting the urgent need for further examination and potential adjustments to ensure that wages align with the economic realities faced by everyday Nigerians.

Surprisingly, South Africa, Egypt, Algeria, Nigeria, and Ethiopia top the list of Africa’s largest economies, according to the 2024 report from the International Monetary Fund (IMF).

However, despite their economic prowess, none of these countries ranks among the top five in terms of the highest minimum wages on the continent. South Africa stands out as the exception, securing the fifth position in terms of the highest paid minimum wages.

The leading countries in terms of minimum wages are the Seychelles, Libya, Morocco, Gabon, South Africa, Mauritius, and Equatorial Guinea. They boast minimum “take-home” amounts at the end of the month of $456, $325, $315, $256, $242, $240, and $224, respectively.

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These figures underscore the significant disparities in wage levels across Africa, with some countries offering substantially higher minimum wages than others.

This discrepancy raises pertinent questions about the economic policies and priorities of these nations, particularly concerning the welfare of their workforce.

As discussions surrounding minimum wage adjustments continue to gain traction, it becomes imperative for policymakers to address these disparities and strive for more equitable remuneration practices that reflect the economic realities and needs of their citizens.

Michael Adeyemi, an economist and university lecturer, said the efforts of organised labour to push for a new minimum wage are good “provided that the government can do more to curb the clutches of inflation through more robust fiscal and monetary policies.”

“More money is needed, but what takes all the salary in a twinkling of an eye is inflation; the government must fight it,” he added.

However, the effectiveness of minimum wage adjustments in addressing poverty and income inequality hinges on various factors, including the level of the wage increase, the cost of living, and the overall economic environment.

While higher minimum wages undoubtedly provide much-needed relief to low-income earners, their impact may be limited if they fail to keep pace with inflation or if the cost of living continues to rise at a faster rate than wages.

Additionally, the success of minimum wage policies relies heavily on effective implementation and enforcement, as well as complementary measures such as affordable housing initiatives, access to healthcare, and educational opportunities for upward mobility.

However, it is essential to note that the effectiveness of minimum wages ultimately depends on a combination of factors, including the level of the wage increase, the cost of living, and broader economic conditions. As such, policymakers must carefully consider these factors when designing and implementing minimum wage policies to ensure maximum benefit for society as a whole.

Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).

Wasiu Alli is a business and finance journalist at BusinessDay who writes about the economy, business trends, and politics. He holds a BA. Ed. and M. Ed. in English Language and Education.