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Minimum wage negotiation: Need for transparency, realism and flexibility (2)

Inflation and debt … Aftermath of the last minimum wage increment

By Paul Igbinoba

In the first part of this opinion piece, we concluded by recommending a minimum wage of between N40,000 and N80,000, using an International Labour Organisation’s (ILO) benchmark on minimum wage: 30 to 60 percent of per capita gross domestic product, GDP. This is reflective of the Federal Government and the Organised Private Sector’s offer of N57,000 as the new minimum wage, but a far cry from the Organised Labour’s current demand for a minimum wage of N497,000. The reason for the current article is to argue for a change of heart by our labour leaders.

Read also: Minimum wage negotiation: Need for transparency, realism and flexibility

Apart from the fact that Labour’s demand is unrealistic from the points of view of affordability or ability to pay by public and private sector employers of labour; and the consequential inflationary impact of a high hypothetical minimum wage, I think Labour’s overall consideration should be the Big Picture: how can Labour collaboratively work with government and employers of labour to reposition the Nigerian economy in the next twelve to twenty-four months to stabilise the naira exchange rate, bring down inflation, enhance labour productivity, especially through improved power supply, promote industrial harmony and investor confidence and ensure that the foregoing translate to improved real income, better condition of living and the lifting of the burden of hardship on Nigerian workers; and expanding and not decreasing the labour force through improved employment opportunities.

Labour also needs to accept the necessity and indeed the inevitability of economic reforms, which if well managed with the support of relevant stakeholders including Labour can turnaround and strengthen the economy for greater growth, productivity and competitiveness. We also cannot afford to ignore the Fourth Industrial Revolution and climate change/net zero emission challenges and their impact on the workplace and the workforce.

There are reasons why Labour needs to tone down their hawkish stance on minimum wage negotiation and engage more with prevailing economic reality. First, the share of wage employment as a percentage of total employment in Nigeria is declining. According to a recent Nigeria Labour Force Survey by National Bureau of Statistics (NBS), it declined from 13.4 percent in the fourth quarter (Q4) of 2022 to 11.8 percent in Q1 2023. The trend may continue with a high minimum wage. Renowned economist Bismark Rewane while speaking at the recently concluded 2024 Vanguard Economic Discourse cautioned against Labour linking wage demand to dollar exchange rate as it could lead to job losses. This is very much in line with the opinion in an article written in a March 2019 edition of Finance and Development, titled, “Does a minimum wage help workers?” The conclusion of the article was that “An overly generous wage may prompt employers to cut jobs.” So while Labour can declare a national strike in its efforts to secure a high minimum wage, it has no powers to stop employers of labour, especially in the private sector from downsizing their workforce to cut down on unsustainable wages.

Secondly, it is doubtful if more than 50 percent of the wage employment (or salaried workers) are entitled to the minimum wage. According to NBS, small and medium scale enterprises (SMEs) account for 48 percent of Nigeria’s GDP and 84% of employment. Besides, the 2011 Minimum Wage Act exempted companies employing less than 50 employees from paying the minimum wage; likewise, the 2019 Minimum Wage Act exempted companies employing less than 25 people from paying the minimum wage. Against this background, it is likely that not more than 5 percent of the total labour force in Nigeria (wage employment plus self-employed) are entitled to the minimum wage.

 “There are reasons why Labour needs to tone down their hawkish stance on minimum wage negotiation and engage more with prevailing economic reality.”

Thirdly, according to Labour as many as eight states are still not able to pay the current N30,000 minimum wage; and according to a March 7, 2024 report by the Punch newspaper, 24 states in Nigeria cannot pay salaries without the monthly allocation from the Federation Account.

Fourthly, international investors tend to shy away from investing in countries and economies with aggressive and uncompromising labour movements fond of high-sounding demagogic rhetoric, in preference for more harmonious and collaborative industrial environments.

Fifthly, robotics and Artificial Intelligence and the Internet of Things (IoT) offer employers of labour diverse opportunities to redesign their business processes and workflow and rationalise their staff requirements. Unduly high minimum wage makes such prospects more attractive to employers of labour.

Read also: Labour rejects FG’s N60,000 minimum wage offer

Against the foregoing considerations, Nigerian labour leaders need to be more flexible, more accommodating, more collaborative and more proactive and innovative in their approach to minimum wage negotiation. They should leave all options open and should stop seeing employers of labour as adversaries but as partners in progress.

In engaging with public sector employers, particularly state governments, they should leave the option open for workers at the state level to come to mutual agreement with state governments on an affordable and sustainable minimum wage, which could be higher or slightly below the agreed national minimum wage. Two examples readily come to mind: Edo State Government that currently pays a N40, 000 minimum wage and has promised to pay a new minimum wage of N70, 000; and Anambra State where the labour unions and the state government have agreed on a roadmap on how to set an agreeable minimum wage.

Labour could even consider the South African model, where minimum wage is determined on a sector by sector basis. That way, minimum wage determination is decentralised, becomes more collaborative, more realistic and more result-oriented; and less disruptive and tension-soaked.

The operative words in minimum wage determination in Nigeria going forward should be collaboration, pragmatism, realism and flexibility.