Minimum wage negotiation: Need for transparency, realism and flexibility

By Paul Igbinoba

I have written two previous opinion pieces on the ongoing minimum wage negotiation, the first on April 22, 2024, titled “Minimum wage negotiation: need for a pragmatic approach,” and the second on April 29, 2024, titled “Minimum wage negotiation and the nexus with food inflation.” The present article has become necessary because of the current impasse in arriving at an agreeable minimum wage by the 37-man Tripartite Negotiation Committee.

The 2004 National Minimum Wage Act set the minimum wage at N5,500, while the 2011 Act set the minimum wage at N18,000. In 2018, after months of agitation by organised labour and negotiation, the minimum wage was eventually set at N30, 000. But even today, eight state governments are still not able to pay the N30,000 minimum wage, according to the NLC.

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The ongoing minimum wage negotiation is certainly the most contentious in the history of minimum wage negotiation in Nigeria, exacerbated by the harsh cost of living effects of the ongoing economic reforms. That the economic reforms are necessary is in no doubt. However, whether sufficient measures have been taken to alleviate their effects on the most vulnerable segment of society is debatable, despite the commendable efforts of the federal and many state governments. The general feeling among labour leaders is that not enough has been done to ameliorate the economic hardship as it affects workers, which has influenced their hard-line approach to negotiation so far. Due to the nature and structure of governance in Nigeria, policymakers and implementers usually do not share in the cost and burden of economic reforms.

On the other hand, organised labour has to be more pragmatic and realistic in their demands, as I posited in my opinion piece of April 22, 2024. A bargaining position of N615, 000 was totally unrealistic; so is their latest position of N497, 000. There seems to be no middle ground vis-à-vis the Federal Government and Organised Private Sector’s latest offer of N57, 000. This is an impasse, a difficult deadlock that needs to be broken for industrial harmony and the progress of the Nigerian economy.

Normally, the considerations in a minimum wage negotiation will include the cost of living, productivity, affordability/ability to pay, sustainability, and fairness, which I understand to mean bridging the gap between the least paid and the highest paid in a salary scale to not more than a ratio of one to ten (with the exception of the remuneration package of CEOs, especially in highly competitive industries). But it would appear the primary consideration of organised labour seems to be “a living wage.” In the words of NLC President Joe Ajaero, “It (the N57,000 minimum wage offer) is still not substantial compared to what we need to make a family move.” While the cost of living is no doubt a key factor in the negotiation process, so are affordability and sustainability.

 “The general feeling among labour leaders is that not enough has been done to ameliorate the economic hardship as it affects workers, which has influenced their hard-line approach to negotiation so far.”

The International Labour Organisation’s (ILO) Minimum Wage Fixing Convention (1970) recommended the following when setting minimum wages: i) the needs of workers and their families, the cost of living, the general level of wages, social benefits, and the general living standards of other social groups; and ii) economic factors, including the requirements of economic development, levels of productivity, and the desirability of attaining and maintaining a high level of employment.

“While the ILO leaves it up to the national stakeholders to attribute weights to these different social and economic objectives, it has tentatively suggested various ‘benchmarks.’ In its 2008/9 Global Wage Report, the ILO suggested that a minimum wage of 40 percent of the mean (average) national wage might be a ‘useful reference point’ given that many countries clustered around that value. But the final value should depend on ‘country-specific factors.’ Other suggested benchmarks include setting it at between 50 and 60 percent of the median wage (that is, the wage at the middle of the wage distribution) or 30 to 60 percent of GDP per capita.”

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Using the ILO benchmark of 30 to 60 percent of GDP per capita gives us the following outcomes: Nigeria’s GDP, according to IMF 2024 estimates, is US$252.738 billion. Nigeria’s population, according to a Worldometer online real-time population estimated at about 1pm on Friday, May 24, 2024, was 228,608,500. The US dollar-naira exchange rate online in real time, also at about 1 p.m. on May 24, 2024, was N1463.6643. Dividing the GDP of US$252.738 billion by the population figure of 228,608,500 gives us $1,105.549 as Nigeria’s current per capita income (that is, the annual (average) income per head for every Nigerian). To convert that to naira, we multiply by N1463.6643, which gives N1,618,152.6032 as Nigeria’s per capita income in naira terms (on an annual basis) as of Friday, May 24, 2024. Dividing the figure by 12 gives the monthly per capita income value of N134,846.0502.

Applying the ILO 30 to 60 percent benchmark for determining the minimum wage, we create three scenarios: 1) 30 percent times monthly per capita GDP: 0.30 x N134,846.0502 gives N40,453.8150 as minimum wage; 2) 45 percent times N134,846.0502 gives N60,680.7225 as minimum wage; and 3) 60 percent times N134,846.0502 gives N80,907.6031 as minimum wage.

It is therefore clear that using the ILO benchmark, the minimum wage in Nigeria should be between N40,453.8150 and N80,907.6031.