• Wednesday, June 19, 2024
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A living wage is an antidote to poverty; it’s time Nigeria paid it!

Minimum wage: How not to leave pensioners behind

Nigeria is a country where the government always resists a review of the minimum wage. Whereas in some countries, independent bodies fix the minimum wage without acrimony, it’s always a war of attrition between the government and labour unions in Nigeria. Indeed, Nigeria is probably the only country where a minimum wage stays unchanged for years. For instance, for seven years, from 2011 to 2018, the minimum wage stood at N18,000 per month until it was changed to N30,000 in 2018. Since then, over six years later, nothing has changed. The Federal Government and the unions are now engaged in a battle royale over a new minimum wage.

Q: “Why would any government refuse to pay workers a wage that is high enough to maintain a normal standard of living?

But the government is utterly out of touch for dithering on a new minimum wage, which is a subsistence wage. In many countries, the focus has shifted from the minimum wage to the living wage. There is a huge difference between the two. A minimum wage is the lowest hourly wage, which can be as low as any amount that a worker may be paid. However, according to the Oxford Dictionary, a living wage is “a wage that is high enough to maintain a normal standard of living.” Think about it. Why would any government refuse to pay workers a wage that is high enough to maintain a normal standard of living? The alternative is to impoverish workers and entrench a phenomenon known as in-work poverty, where people are in paid jobs but still can’t make ends meet!

Read also: TUC condemns N48,000 proposed minimum wage, says it can’t buy a bag of rice

In 2016, the UK introduced the hourly living wage, which goes up every year and is currently £11.44 (N21, 349) per hour. The UK still has the minimum wage, but it is for workers under the age of 20. For those aged 16 or 17, the minimum wage is £6.40 (N11,948) per hour, while for those aged 18, 19, or 20, it is £8.80 (N16,054) per hour. But those aged 21 or older receive the living wage. This recognises that anyone aged 21 or above is an adult who needs a reasonable wage to maintain a normal standard of living, such as being able to afford adequate shelter, food, and other necessities. As Investopedia puts it, the goal of a living wage “is to allow employees to earn enough income for a satisfactory standard of living and prevent them from falling into poverty.” That’s why a living wage is an antidote to poverty.

The UK example shows how some governments are making efforts to tackle poverty through the wage system. As I argued recently in this column, civilised nations don’t pauperise their citizens. For instance, in the UK, those whose income is too low, that is, below £12,571 per annum, don’t pay income tax. Furthermore, benefits and state pensions are increased in line with inflation, while poor households that are receiving benefits get additional cost of living payments. All in an attempt to support the poor and the vulnerable.

Interestingly, the Nigerian Constitution mandates such a welfare state. Section 16(2)(d) of the Constitution requires the state to “direct its policy towards ensuring that suitable and adequate shelter, suitable and adequate food, a reasonable national minimum living wage, old age care and pensions, unemployment, sick benefits, and the welfare of the disabled are provided for all citizens.” First, note that the drafters of the Constitution expected the state to provide adequate shelter, food, and welfare benefits in addition to the national minimum living wage. Second, note that the drafters did not say minimum wage but “living wage,” which, to repeat the Oxford Dictionary definition, is “a wage high enough to maintain a normal standard of living.”

Now, is the current minimum wage of N30,000 ($19.97 or £15.87) per month high enough to maintain a normal standard of living? Of course not! The World Bank defines extreme poverty as living on less than $1.90 (N2,854) per day. Given roughly 30 days a month, $1.90 per day for 30 days is $57, which is $84,757.86 per month. So, at a very basic level, the minimum wage should be about N90,000 a month to take a worker out of extreme poverty. Yet even that amount would still not be enough for anyone to maintain a normal standard of living in Nigeria, especially with the high costs of accommodation, transport, food, and other necessities.

Then there’s the problem of coverage. How many people are paid the minimum wage? According to the World Bank, only 10 percent of Nigeria’s working-age population is in formal or wage employment. The rest are in the informal sector and won’t receive the minimum wage. Therefore, anyone who says the minimum wage has not reduced poverty in Nigeria should consider its limited coverage and the fact that, even at a minuscule N30,000 per month, workers don’t receive it regularly, with many state governments owing salary arrears for months. There are many Nigerians working for state governments who have not received their salaries or full salaries for several months. So, why would the so-called minimum wage reduce poverty?

Yet, notwithstanding the limited coverage, a reasonable living wage, if paid regularly, would reduce extreme poverty as those receiving the living wage have families and would be better able to support them with such a wage. However, they cannot support themselves, let alone their families, with a minimum wage, certainly not the current paltry N30,000 per month.

But the aim of any government should not only be to eradicate extreme poverty but also to take many people out of poverty altogether. However, that can only happen when people earn high enough wages to invest in income-yielding assets, such as properties or shares. In his seminal book Capital in the Twenty-First Century, Thomas Piketty argues that one of the greatest sources of poverty is inequality in income from labour (salaries, wages, etc.). This is because some people earn so much and invest in capital assets, earning additional income from rent, dividends, profits, etc., while some earn so little and have nothing to invest. Wages are significant because they can provide a ladder to wealth.

Unfortunately, in Nigeria, the political class captures a disproportionate share of the national income through excessive remunerations, not to mention corruption, while the working class receives a poverty wage called the minimum wage. The political class then uses their excessive income from “labour” and corruption to invest in assets and earn additional income from capital, thereby deepening inequality. That inequity must be addressed, and the starting point is a reasonable living wage for workers.

The Federal Government is said to have offered a new minimum wage of N48,000 per month, while the Organised Private Sector (OPS) has proposed N54,000. But they are still talking about a minimum wage, not a living wage. Of course, the N615,000 per month that the labour unions demand is unreasonable. However, given that the government provides no basic amenities for the people and considering the limited coverage of any living wage, it’s hard to disagree with something within the range of N100,000–N120,000 per month.

There are always concerns about inflation. But the annual increase in the UK’s living wage, set by the Low Pay Commission, an independent body made up of representatives of employers, workers, and expert groups, has not fueled inflation, which remains low at under 3 percent. That said, concerns about inflation are real. But the solution is not to avoid a living wage but to push aggressively for labour productivity and tackle inflation through fiscal and monetary measures.

The truth is, that the Constitution calls for a living wage. Thus, any talk about a minimum wage is a constitutional breach. Reduce poverty; pay a living wage!