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Author: Stephen Onyeiwu, Professor of Economics & Business, Allegheny College
Original article: https://theconversation.com/nigerias-minimum-wage-has-never-protected-workers-from-poverty-heres-why-228544
Wages have become the top issue for Nigeria’s organised labour movements in the past year. Reacting to recent increases in the cost of living, the labour movement has been calling for an upward review of the national minimum wage, currently N30,000 (US$24) a month. The Conversation’s Adejuwon Soyinka asks economics professor Stephen Onyeiwu if Nigeria’s minimum wage truly protects workers from poverty.
When did Nigeria get a minimum wage and why?
In 1974, the Nigerian government followed the recommendations of the Udoji Commission and increased workers’ wages. But public sector workers were the main beneficiaries. It was not until 3 September 1981 that the first minimum wage law was introduced. The law covered all full-time workers except seasonal workers and those who worked in enterprises employing fewer than 50 workers.
Its introduction was prompted by a number of factors. The Nigerian Labour Congress, an umbrella organisation of trade unions then led by Hassan Sunmonu, was vociferous in its demand for improvements in workers’ welfare. It threatened to go on strike if its demand for a minimum wage was not met. As a new government at the time, the last thing the president Shehu Shagari administration wanted was a nationwide strike.
The first minimum wage in 1981 was 125 naira per month. At the exchange rate of US$1 = 0.61 naira in 1981, this amounted to about US$204. In 2024, that minimum wage would be equivalent to about 265,000 naira (US$204) per month, going by the current exchange rate of about US$1 = 1,300 naira. So the minimum wage in 1981 was at least eight times more than the current minimum wage.
The minimum wage in Nigeria has been revised a number of times but has not kept pace with the cost of living. It became 250 naira in 1991, 5,500 naira in 2000 and 18,900 naira in 2011. The current 30,000 naira took effect in 2019.
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Who is affected by changes to the minimum wage?
The Nigerian labour market has two segments. Public-sector workers are the most affected by increases in the minimum wage. This is because the government cannot violate its own law, and nearly all public-sector workers are unionised.
Most Nigerians, however, are not affected by changes in the minimum wage. This is because 92.3% of the working age employed population work in the informal sector, mostly as farmers, traders or providers of services.
Only about 8% of Nigerians (or 16 million), mainly in the public and “high-end” private sectors, would benefit from a minimum wage increase. This is in contrast to South Africa, where 60% of workers are covered by the minimum wage.
In big corporations, skilled workers are often indifferent to the minimum wage, but sometimes their wages are adjusted upwards when a new minimum is introduced.
Many workers in small and medium-sized companies – part of the 16 million referred to above – are paid the minimum wage. Some of them, especially those in family-owned businesses, are paid less than the minimum wage.
Enforcement of minimum wage laws in Nigeria is at best weak. Consequently, many workers in the private sector, especially in services, hospitality, small private clinics and non-profit organisations, earn below the minimum wage. Most are not unionised and are unlikely to benefit.
Does the minimum wage protect workers from extreme poverty?
It depends on how one measures poverty.
A nation can establish a poverty line (or a minimum income level) below which someone would be considered poor. This minimum amount is deemed adequate to maintain an acceptable living standard, given the cost of living in a given country. The line is usually set very low.
In reality, however, Nigeria’s minimum wage traps workers in a cycle of poverty if a multidimensional measure of poverty is used – one that considers income and access to health, education and living standard indicators. These include sanitation, drinking water, electricity, and housing. As of 2021, when the latest data was compiled, 47.3% of Nigerians were multidimensionally poor. That number may have gone up significantly, following the removal of fuel subsidies and a galloping inflation rate of 33%. The subsequent steep increase in the cost of living, without wage adjustments, can only push more Nigerians into poverty.
It is, therefore, possible for someone earning the minimum wage to be regarded as non-poor under the income measure, but poor when the multidimensional measure is used. The current minimum wage of N30,000 (US$24) in Nigeria cannot extricate workers from multidimensional poverty.
The number of poor people in Nigeria has been rising for the past eight years, and will continue to do so until the minimum wage reflects the cost of living and recognises the salience of social services like health, education and housing.
Another reason the minimum wage does not protect Nigerian workers from poverty is that it is not indexed to inflation. Inflation has been rising faster than wage growth in Nigeria, thereby decreasing the real purchasing power of workers. Their income buys less and less. Inflation rose from about 11% in 2008 to 25% in 2023. The minimum wage has remained the same since then.
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What impact has the minimum wage had on the economy?
The current minimum wage has had a negative impact on the Nigerian economy.
To make ends meet, many workers are now doing “side hustles”. Some public-sector workers are hardly available in their places of work.
The low wage has undermined morale and productivity, and created a sense of deprivation among workers.
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What would be a better way to combat poverty?
One way is to help people acquire skills and capabilities that are needed in the new global economy. These are skills like information and communication technologies, artificial intelligence, data analytics, biotechnology, bio-informatics, industrial design, 3D printing, digital imaging, design and animation.
Nigerian workers have fallen behind in the acquisition of 21st century skills. In a survey of companies in Nigeria, 81% said they had difficulty finding workers with the relevant skills.