A N250,000 minimum wage demand by organised labour may cost the federal government an additional N85 billion per month, a new report by SBM Intelligence has shown.
The Africa-focused geopolitical research firm said that with the government injecting such an amount into the payment of wages, it could lead to demand-pull inflation where increased money supply outpaces the availability of goods and services.
“Implementing a higher minimum wage would require the government to infuse an additional N85 billion into the economy monthly, which could cause demand-pull inflation,” SBM Intelligence said in its latest report: “Will Nigeria’s Minimum Wage Ever Be A Buffer?”
According to the report, implementing a wage review could enhance the livelihood of the citizens, however, its economic consequences are dire.
It stated that a substantial new minimum wage could lead to a wage-price spiral, where higher wages lead to increased consumer spending.
This will eventually drive up prices, push inflation to the roof, fuel another round of cost-of-living crisis, and further strain the economic budgets of households.
Africa’s most populous nation is currently facing a 28-year high consumer price which climaxed to 33.95 percent in May 2024 with food prices skyrocketing to 40.66 percent.
Since Nigeria’s minimum wage is not indexed to inflation, according to the report, a wage hike will erode workers’ real purchasing power and diminish their income’s value over time.
Many analysts believe that a wage review with no increased productivity may pose challenges to the government’s fiscal responsibilities and could exacerbate economic hardship.
“From a macroeconomic perspective, if wages rise across the board without a proportional increase in productivity, the government may face pressure to fund higher wage bills through inflationary measures.
“This could involve borrowing more money or increasing the money supply (printing money), which can fuel inflation,” the report said.
It however suggested that improving productivity, particularly in vital sectors like agriculture and manufacturing, may mitigate the inflationary impact of wage hikes.
Both the government and organised labour have been at loggerheads over a sustainable new minimum wage given the current economic realities.
The organised labour, citing the expiration of the five-year Minimum Wage Act which saw the country’s lowest wage increase from N18,000 to N30,000 in 2019, demanded a N615,000 new minimum wage.
Negotiations between the two sides (labour and the government) have been ongoing, and the proposed amount has decreased to N250,000 as of June 7, 2024.
The tripartite committee on the new national minimum wage recommended N62,000 to the federal government on 10th June 2024, while the National Assembly made known its willingness to approve an increase to N70,000.
In its meeting held on 26th June 2024 at the Nigerian Governors Forum (NGF), state governors promised to remain dedicated to the process and assured that better wages would result from the ongoing negotiations.
However, organised labour has described state governors’ desire to determine their states’ minimum wage as divisive and capable of deepening poverty in the country.
It said the notion was dictatorial and undermined the essence and model of creating a national minimum wage in Nigeria.
Meanwhile, the president is expected to meet with the Labour unions today in a bid to reach a consensus on the new national minimum wage.
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