Why Raising Minimum Wage May Be A Bad Idea
So, the issue of raising the minimum wage from 19,800 naira to more than 50,000 naira has been in the offing for a while. In fact, the present administration of Muhammad Buhari has been dangling minimum wage increase before Nigerian workers more than the preceding governments.
In what could be perceived as a move to implement this increase, the government has gone ahead to inaugurate a 30-member tripartite National Minimum Wage Committee for the negotiation of a new National Minimum Wage for Nigerian workers.
However, Nigerian workers may be disappointed as Director General of Budget Office, Ben Akabueze disclosed on Wedsday that no provision for wage increase as proposed by The Nigeria Labour Congress is contained in the 2018 budget.
But as ideal as wage increase may appear, a raise in national minimum wage will not necessarily augur well for the economy. Infact, it could affect the economy in general and businesses in more ways than imagined – negatively.
First, a raise in national minimum wage will lead to inflation. Because every worker now has more money to spend, demands for goods and services will surge and businesses will respond by raising prices. It is called wage push inflation. And it is unavoidable when wage increase happens on state wide scale.
“The CBN has been battling inflation for the past one year. It appears they are succeeding but should a salary increase happen, they’ll soon be back to square one,” said an economic analyst, Simeon Oseze in a chat with Bounce News.
Read More: Nigerians React To Proposed Minimum Wage
Second, it will lead to job losses. You probably cannot imagine how wage increase could lead to job losses. But here is the basic concept behind the minimum wage.
“When an employee asks his boss to pay him more than he is worth, the boss laughs. But when government holds the gun to a business owner’s head and says, “pay your employees more than their time is worth to you,” the boss has a few options.
“He can fire some employees and pay others more, he can leave the area to avoid the government, or he can take a loss and likely go out of business,” said an online publication Values and Capitalism.
Instead, the publication noted, “If politicians want to support a cause that will actually help poor people make more money, they should champion free market reforms.
“Smaller taxes and smarter regulations will allow businesses to continue doing what they do best—offering goods and services at prices that customers are actually willing to pay.”
This will lead to more opportunities as more companies will be able to hire more workers. As those workers gain experience, their work will become more valuable, and the wage which workers are aching to force by law may just come about on its own.
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