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Minimum wage negotiation: Need for a pragmatic approach

Minimum wage negotiation: Need for transparency, realism and flexibility

By Paul Igbinoba

It has been five years since the last minimum wage which elapsed in March 2024 was successfully negotiated and was enacted into law. The need and indeed urgency of a new minimum wage can hardly be overemphasised against the background of the recent economic reforms and its effects on the cost of living.

Read also: Tinubu to announce a new minimum wage on Workers’ Day

Towards the negotiation of a new minimum wage, the Federal Government set up a 37-man Tripartite Negotiation Committee on Tuesday, January 30, 2024. The Committee, which is headed by a former Head of Service of the Federation, Mr Bukar Goni Aji, has six top-level government officials, including the Minister of Finance and Coordinating Minister of the Economy, the Minister of Budget and National Planning and the Minister of State for Labour and Employment; six state governors, twelve members of the Organized Private Sector and twelve members of Organized Labour. It is commendable that most of the members of the Tripartite Committee are from the private sector and the labour unions, which is a demonstration of an earnest desire on the part of the government for a fair outcome.

Q: “While that will certainly meet up with a living wage criterion, will it measure up for affordability and sustainability? Or will it be fair to all parties, practicable and implementable?”

Key members of the Committee spoke from different perspectives: The Chairman assured that “extensive consultations with a broad spectrum of stakeholders” will be made; and stressed that the outcome of the negotiations will be “fair, practical, implementable and sustainable.” At the South West stakeholders consultative meeting of the Tripartite Committee, the Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun espoused the principles of affordability and sustainability; a living or fair wage; and the need for aligning wage increases with increased labour productivity. The President of the Trade Union Congress (TUC), Mr. Festus Osifo, lamented that workers are passing through an excruciating period.

Everybody waits with bated breath what the outcome of the minimum wage negotiation will be. This is certainly the most unusual and indeed very difficult time to undertake a review of the minimum wage. Various arms of the labour unions are demanding for a minimum wage of multiple hundreds of thousands, in fact, a little short of a million naira. Our haggling culture in this part of the world is to start from a high price and hope to settle somewhere in the middle. The labour unions likewise may be expecting that by demanding roughly N800,000 or N600,000 they might end up getting about N400,000 or N300,000 as the eventual outcome for an agreeable minimum wage.

Read also: Minimum wage hike tops labour’s wish list for Worker’s Day

While that will certainly meet up with a living wage criterion, will it measure up for affordability and sustainability? Or will it be fair to all parties, practicable and implementable? With the present Consolidated Public Service Salary Structure (CONPSS) for Federal civil servants in Nigeria, the basic salary for Level 1, Step 1 is N30,000 per month (minimum wage), while Level 17, Step 1 is N397,442 per month (Permanent Secretary), which is roughly 13.2 times the minimum wage. Please note this is a basic salary without allowances.

Let us now assume for the sake of argument that the minimum wage the labour unions are willing to accept is N300,000 (for Level 1, Step 1 in the civil service). If we multiply that by a factor of 13 for Level 17 (Permanent Secretary) that gives us N3,900,000 or N3.9 million as monthly basic salary for a permanent secretary. On an annual basis, that is N46.8 million basic salary for Level 17, Step 1. Except the government earns a humongous unexpected windfall income that is sustainable in the long term, it will be difficult to envisage the government can accommodate such a wage bill. Not to talk about the inflationary implications. Certainly, printing money to pay salaries is not an option as it would amount to sheer fiscal profligacy.

This brings us to the question of real income versus money income. Money income in this case is the hypothetical N300,000 minimum wage. Real income, on the other hand, is the quantity of goods the money can buy. In a hyper-inflationary situation as could be imagined with such a minimum wage, it could just be like carrying your money to the market in a wheelbarrow to take home in your pocket the goods you bought! That is certainly an untenable scenario that should be avoided.

We have not even considered the perspective of private-sector employers. To be fair to leading private sector employers, many of them have already adjusted the salaries and wages of their employees to reflect the cost-of-living index. However, that does not sufficiently capture the situation of employees of SME companies and employers. It is going to be difficult for them to agree to a wage increase that is totally out of the reckoning with productivity levels and their ability to pay.

At the end of the day, pragmatism, practicability and realism must win. Labour will do well to accept a much lower but affordable, sustainable and implementable minimum wage, as an interim measure, which could be reviewed in another two years.

The good news is that we are beginning to see, at least dimly, light at the end of the tunnel. The recent sharp appreciation in the value of the naira against major currencies, the crash in the prices of key goods and services like diesel, and international and local airfares show that the economy is gradually turning around. That should be factored into the negotiations.