#MINIMUM WAGE: 5 Things That Will Likely Happen If N30,000 Gets Approved
The dispute between organised labour and the federal government over a new minimum wage seems to have come to an end, with a report proposing 30,000 naira already submitted to President Muhammadu Buhari.
At this time, no one knows for sure whether the proposed sum will be approved or how long it would take at the National Assembly for the bill to become law.
If the National Assembly does pass the bill, several scenarios are bound to play out.
But no matter which scenarios, 5 things are likely to happen. These include:
1. Job Losses: One of Nigeria’s greatest challenges is its bloated personnel costs. As at October 2017, the federal government spent 1.5 trillion naira on personnel costs alone.
In fact, since 1999, personnel cost has had to gulp over 50% of the budget of each administration. So, with the increase in minimum wage, one thing is certain to happen - increased personnel cost.
This means that the government would have to budget more for salaries alone.
Since the government is looking for a way to cut costs, it may have no choice than to sack many of its employees.
So, while you celebrate 30,000-naira minimum wage, it could lead to job losses as government seeks a manageable workforce.
2. Salary Debts Will Rise: If the government, for fear of losing votes or industrial disputes, is unable to reduce the size of its workforce, one thing that is certain is running into debt.
Already, many state governments are struggling to pay the 18,000-naira minimum wage and are not likely to suddenly find it easier to pay the 30,000-naira.
So, cases of government owing salaries for months will likely worsen if the 30,000-naira minimum wage is approved.
3. Labour Strikes: You may ask: Isn’t the 30,000-naira approved to avert labour strikes? That is correct. But more strikes will be provoked.
If the government sacks workers because it cannot afford to retain the size of workforce it currently has at 30,000-naira minimum wage, the labour unions will strike.
And if the government begins to owe salaries for months, the labour unions will also go on strike. So, whichever way, the approval of 30,000-naira could lead to more industrial actions.
4. Inflation: Ok, let’s just imagine that the 30,000-naira gets approved, and both the federal and state governments suddenly find the resources to pay, without sacking workers or owing.
The likely thing that will happen is everyone will go the market with more money in their pockets.
The obvious implication is that prices of goods will go up. So, inflation is inevitable.
And guess what, the Central Bank of Nigeria, CBN has been battling inflation with tight monetary policies over the past 3 years – retaining benchmark interest rate at 14%, intervening in the foreign exchange market to defend the naira etc.
All that effort will suddenly seem like a waste once inflation starts to go up again because of inflation resulting from minimum wage increase.
5. Increased Cost of Production: Increasing minimum wage always translates to increase in cost of production.
Imagine that you have only 10 staff, producing a product that is sold 10-naira per unit. Each of your employees earns 20-naira.
What will happen is that once this minimum wage increases, everyone involved in getting your product to the market will increase their prices.
Your employees will also demand higher wages of say, 22-naira. This then raises your cost of production and you will have no choice than to increase the unit cost of your product from 10-naira to say, 12 or 15-naira.
In the end, has anyone truly won?
What ought to be done:
1. Government needs to make the investment climate more attractive to allow the private sector to drive the job creation efforts. If this happens, government need not have as many employees as it has today.
Today, there are several ventures belonging to government that should be completely privatised.
These ventures help to keep the government broke. The government should let go of these ventures. Doing so, will lift the burden of rising personnel costs from its shoulders.
2. There needs to be more efforts in getting foreign direct investment into the country. We need to have more foreign investors building factories in the country. Manufacturing is the surest way to create jobs and drive down inflation.
3. The government needs to cut the cost of governance. It is not enough for the President and Vice President to just take pay-cuts.
There needs to be a slash in the take-home of every political office holder in the country. That will leave more resources available to invest on more productive ventures.
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