Reducing Nigeria's minimum wage from N18,500 to N9,250 would undermine the rationale for having a minimum wage and spark widespread opposition. It could lead to spontaneous protests from labor unions and pressure groups. It would push wages below subsistence levels and increase poverty and unrest. While the government has a right to reduce the minimum wage, doing so unilaterally and by half would destabilize the labor market equilibrium and likely cause unemployment to rise. It may also damage Nigeria's reputation internationally. Maintaining a living minimum wage is important for economic growth and stability.

1. What Happens If The Newly Inaugurated
President Buhari’s Government Decides To
Reduce The Minimum Wage From
N18,500.00 To N9,250.00?
(Seminar on Macro-economic Issues)
By
Ogwuike Philomena C.
20th August, 2015

2. Introduction
What is a minimum wage?
 Wage and salary are income derived from
human labour which cover all
compensation to employees for physical
or mental work.
 Compensations include paid vacations,
holidays, sick leave, fringe benefits and
pensions or health insurance sponsored
by the employer and may include stock
options, many of which are linked to
individual or group performance.

3.  ILO denotes minimum wage as legally
enforceable lower limits to wages fixed by
a process involving the authority of the
state.
 Abudu (1987) opines that the national
minimum wage is the lowest wage legally
payable in an economy.
 Minimum wage must have the backing of
the law and cannot be set aside by
individual contract or collective
agreement. Minimum wage, however,
differ in nationality and application (ILO
1986)

4. Rationale for Minimum wage
Fixed worldwide so that workers earn
"decent" wages at a particular time and
place.
 To eliminate exploitation, reduce poverty,
remove unfair competition, ensure equal
pay for equal work; preserve purchasing
power to the worker, prevent industrial
unrest, and also to promote economic
growth and stability

5. Fixing and implementation
Wage should be adequate to maintain a
reasonable standard of life ILO
Legal consideration at fixing minimum
wage:
 Needs of workers
 comparable wages and incomes,
 relative capacity to pay
 requirements of economic development
 Government order (Akinwale, 2000)
 cost of living
 collective bargaining
 impact of fluctuating demand and supply of
labor.

6. In Nigeria, modern sector wages are
determined and regulated by
administrative decisions of government,
wage commissions, and prices and income
policies (Fapohunda , 1979).
In addition, the traditional (mainly rural and
informal) and intermediate sector wages
are influenced to a large extent by market
forces and to a lesser extent by wage
levels in government establishments.

7.  Colonial government encouraged
collective bargaining with
minimal government intervention
and official recognition of trade
unions as legal institutions. The
government ruled out employers
bargaining collectively with
unions (Fapohunda, 1979).

8.  A total of 13 legal commissions have been
established to date:-
(1) Bridges Committee of Inquiry 1941
 (2) Tudor Davis Commission 1945
 (3) Harragin Commission 1946
 (4) Miller Committee 1947
 (5) Gorsuch Commission 1955
 (6) Mbanefo Commission 1959/60
 (7) Morgan Commission 1963/64
 (8) Adebo Commission 1970/71
 (9) Udoji Commission 1972/74
 (10) Damachi Tripartite Committee 1990
 (11) 19-Man Presidential Committee 2000
 (12) Wages, Salaries and Emolument Relativity
Panel 2004/2005
 (13) Consolidation of Public Sector Emolument
Panel 2005/2006

9.  First eleven commissions used changes in
the cost of living indexes rather than
productivity changes for granting wage
increases in response to the prevailing
inflationary pressures which often
reduced workers’ real income below
requirement for basic necessities of life.

10. Legal recognition of Minimum wage in Nigeria
Nigeria as ILO member country is bound by
minimum wage fixing machinery conventions of
1970 which ensures workers’ minimum wage
protection regardless of the sector of industry.
Methods of Fixing minimum wage.
 Acts of the legislation , delegated and
designated boards with power of effective
recommendation and final decision making
authority (Kester, 2002) with the sole discretion
regarding wage interpretation and application.
 The authorities should provide all the interest
parties with the opportunity to express their
views on social problem and possible economic
repercussions (AJLS, 2002).
 The decision-making should take the form of
bargaining to accommodate the position of the
different interest groups represented ILO (1986)

11.  Should be a frequent adjustment to the
minimum wages, in line with labour market
trends, (AJLS, 2002).
 Ensure that timely adjustment are actually made
in line with consumer price and income
indexation.
Challenges in smooth running of minimum
wage in Nigeria
 There is unorganized traditional sector, fairly
ownership of enterprises, small-scale
undertakings, labour intensive, adapted
technologies, and unregulated labour market.

12.  Wage determination policies in Nigeria
Udoji Commission made about 12-30%
increase in wages and salaries to boost
purchasing power of government workers
in the 1970s which later led to
inflationary.
In 1977, an Agency was set to resolve
wage and salary problems.
1981, an Act of parliament increased
minimum wage by 50- 100%.
In 1985 deductions ranging from 2% to
15% was made from all incomes to
Central Bank over 15-months

13.  Deductions were from rents, dividends , wages and
salaries in both private and public sectors.
These deductions were intended to reduce domestic
absorption to ameliorate macroeconomic
imbalance in the economy. The junior workers were
however refunded at the end of the 15-
month economic emergency period.


14. In 1986 government amended 1981
Minimum Wage Act by exempting persons
or companies employing fewer than 500
workers and persons employed in
agricultural projects from its provisions.
 In 1987 the amendment was rescinded
owing to labour protests in major cities
across the country.

15.  In 1991 there was amendment. Each
government department was advised to
pay according to its ability.
 In 1993 an increase of 45% was effected
in public sector workers’ salaries meant to
cushion the inflationary effects of the
rapidly depreciating naira.


16. Theories Underpinning Wage
determination
Subsistence theories
 wages paid to workers should suffice for their
family support. Smith
The “natural price” of labour is the price necessary
to enable the laborers to subsist and to
perpetuate the race. Ricardo
But endogenous influences like pressure group
action, inflation, demand force affect wage.
Thus, the subsistence theory concludes that
wages would always be driven down.

17.  Neoclassical economic theory of wage
determination
No single economic force governs wages,
wages are determined by workers,
employers, and unions, who negotiate to
determine these conditions. The bargaining theory
of wages
 This defines the endogeinity of forces of
labour which is highly responsive to the
irrationality trait of humans

18.  Price theory of wage determination
under competitive market
 Supply and demand law of price
determination in a market concludes that
in a competitive market, the unit price of
labor will vary until it settles at a point
where the quantity demanded will equal
the quantity supplied, resulting in
an economic equilibrium for price and
quantity

19. Response of supply and demand
forces to changes in the minimum
wage
Where
P= price of labor
(Minimum Wage) Q=
labor force; SS=
Supply curve,
DD=Demand curve
P
PE
P2
P1
S
D
QS1QD2QEQD1Qs2
S2
E
D1
S
1
D2
O
S
D
Q

20.  At equilibrium price (PE) the market clears at
equilibrium labor level, 0QE.
 Suppose the government increases the minimum
wage to P1. Existing wage fund only suffices for
0QD1 causing excess supply,
 D1ES1 or unemployment.
 Suppose the government decides to reduce the
minimum wage from PE to P2 instead. Employers
would be capable to pay for more labour but less
people will be willing to work.
 There will be excess demand defined by the area
of the triangle S2 S2ED2 leading to
unemployment

21.  Distribution theory of income
 The theory of distribution established that
the top 10% of income receivers get
between 25 and 35% of the national
income; and the lowest 20% get about
5%.
 The inequality shows to be greatest in
poor countries and diminishes somewhat
in the course of economic development.

22.  Implications of reducing
minimum wage by half
 The non agitation of labor over N18,500
minimum wage over time is evidence that it
subsisted. Consistent with literature, the
internationally reduced purchasing power of
Naira instead demands reviewed policy in
favor of an increased minimum wage.
 Should the government decide to reduce
the wage rate from N18, 500 to N9, 250
(i.e. 50%) then the rationale for minimum
wage according to ILO will be defeated.

23.  Since the government order is not the
only legal actor in fixing minimum wage,
there is going to be a spontaneous
agitation by the other parties e.g. labor
union, pressure groups, and at the
extreme end the international agencies
e.g ILO until perhaps the deduction is
rescinded
 Most importantly, because such wage level
will be below subsistence, a hungry
pressure group will certainly rise in
demonstration to instigate internal unrest
in the country.

24.  Moreover such a reduction cannot make any
significance change in the national economy since
minimum wage constitutes only about 5% of the
national income. It can only impose negative
welfare and social effects directly on the victims.
 The induced increased unemployment rate will
promote increased unskilled labor which will be a
threat to the long run national economy.
 At the wider political level the internal unrest
instigated could draw the sympathy of the
international agencies which may take some
unfavorable policy actions against the country
e.g ILO.
 This will have negative effect on the capital
market especially in the rural areas where
farmers supplement their livelihood with income
from unskilled labor.

25.  Effect on the money market: since the
purchasing power of Naira is already low
against foreign currency, reducing minimum
wage would temporarily lead to deflation
where there will be shortage of money
especially among the poorer populace. This
will impede other business transactions
leading to hardship, hunger, strife and
unanticipated health and life hazards.
 However since Nigerian Agro-industry is
characterized by informal setting this may not
affect Agric labor directly but may induce
multi-faceted social ills that may affect labor
productivity.

26.  Conclusion
 Government has the statutory right to
reduce minimum wage but with
demonstrated due process.
 Moreover Government single handedly
reducing MW to N9,250 will lead to
disequilibrium point for labour and so
induce unemployment. So natural forces
(or unseen hand according to Adam
Smith) will eventually force the MW back
to initial equilibrium (N18,500) or point
above it but never below.

27.  50% reduction is unethical and will
practically increase poverty, rub
purchasing power of workers, instigate
industrial unrest, and deter economic
growth and stability

28. Study Recommendation
Since 25% of labor (within maximum
wage) earn 35% of national income, it
would rather be of more significant
economic relevance if the Nigerian
government should reduce maximum
wage or salary instead.

29. Thank You for
Listening