CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Income policy is usually used as a principal component of

welfare boosting and poverty reduction macroeconomic policy

framework in Nigeria. Minimum wage (hereafter MW)

legislation is a major income policy readily employed in this

regard. Although MW policy has both negative and positive

effects on the overall economy policy makers especially

politicians have used it more often for political purposes than

for socio-economic reasons. MW legislations in the country

have been preceded by high inflation rates that erode

purchasing power and bring reduction in welfare (Adams

1987). Consequently the need for MW legislation which

normally leads to a rise in nominal wage is justified as a

means of adjusting wages and salaries to match with the rise

in costs of living.

It is however notable that wage increase brought about by

MW is usually counter-productive. Apart from leading to a rise

in general price level wage increases are always followed by

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threat of reduction in government workforce and in some

cases such threats have resulted into massive laid-off in the

civil service (Olaleye 1974; Owoye 1994). Also wage

increases in Nigeria do not match up with the rate of increase

in prices. As a result there are always agitations from the

labour unions for persistent wages and salaries increase. This

regular call for rise in wages is at times based on the wide gap

between public sector‟s and private sector‟s wages. The gap

between public sector‟s and private sector‟s wages has often

been given as one reason for the inefficiency and corruption in

the public sector. It is argued that public sector workers

deserve adequate compensation commensurate with their

labour in other to bring about efficiency (Obasanjo 1999).

In view of the above many stakeholders particularly the

labour union organisations have severally called for wage

indexation. However given the problem with wage indexation

government has found a convenient means of raising wages

by setting up Wage and Salary Commissions (WSCs) over the

years. Although WSCs are meant to provide a wide-raging

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solution to civil service problems increment in wages and

salaries is normally embedded in the recommendations of

such commissions.

Inspite of the differing effects of MW legislation its

macroeconomic impact has found little interest in empirical

study in Nigeria. Although there are sample studies that have

tried to examine the impact of MW in an economy across

different parts of the world such studies have often employed

a partial analysis with focus on specific economic effects of

MW in the economy. As pointed out by Adams (1987) the

impact of MW could only be adequate captured within a

macroeconomic model framework. This study therefore

analyses macroeconomic effects of MW using a computable

general equilibrium (CGE) model. The static CGE model

developed in the paper allows for an analysis of the impact of

MW across several sectors and variables within an economy.

In particular the study examines the impact of MW policy on

household income consumption general price level

productivity (output) employment and government balances.

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1.2 STATEMENT OF THE PROBLEM

The recent warning strike embarked upon by the organised

Labour to demand increase in wages has ignited widespread

debate on the place of the Nigerian worker in the economic

scale of the country. „Though organised labour eventually

called off its three-day warning strike many have continued

to question the much-taunted democracy dividends. Emeka

(2011) in this report takes an overview of the demand of the

workers for N18000 minimum wage in comparison with what

political office-holders earn and its attendant effect on the

economy.

According to observers the place of the common man in

Nigeria‟s governance strata has remained a question mark on

successive administrations. While workers in every facet of

the economy labour night and day for paltry sum to survive

the prevalent harsh economic conditions in the country the

political class is perceived to squander the national resources

without care. As if to give vent to this school of thought the

joint government-Labour-Employer negotiating team chaired

by retired Chief Justice of Nigeria (CJN) Alfa Belgore set up

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by government had drafted a new minimum wage bill. The bill

reflected the agreement reached between government and

Labour as agreed by both parties but government feigned

ignorance of such agreement.

The committee had while presenting its report to the

Secretary of Government of the Federation (SGF) Ahmed

Yayale in Abuja noted that the N 18000 minimum wage

would not lead to inflation as being canvassed in some

quarters.

“The Tripartite Committee on National Minimum Wage has

recommended a national minimum wage of N18000 per

month for all establishments in the public and private sectors

employing 50 workers and above” Belgore stated. “The

committee met severally and consulted widely. It further took

cognisance of the need to ensure that the outcome of the

exercise must be growth-propelled in terms of GDP growth

rate. “It also considered its capability of promoting rapid

socio-economic transformation of the country which will not

lead to inflation spiral. The objective is aimed at alleviating

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poverty in the country as well as maintaining macroeconomic

stability.” Belgore (2010) also suggested that to make the

recommendations effective the extent National Minimum

Wage Act 1981 and its subsequent amendments of 1990 and

2000 should be repealed with a new wage act. Leadership of

the organised Labour had hinged their warning strike on the

fact that government refused to heed agreements reached with

it after widespread consultation. General Secretary of the

Democratic Socialist Movement (DSM) Segun Sango had

noted irrespective of the fact that the National Assembly had

expressed its willingness to give the bill accelerated passage

that government failed to submit to the legislators. Even some

analysts have thrown their weight behind the Belgore

committee describing demand for wage increase by Labour as

justified.

There is the need to adopt a systematic approach regarding

such matters. In most progressive countries of the world the

wage increase index is linked to the rate of inflation” Chizea

(2010) advised. “The thinking is that the government must be

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proactive in catering for the welfare of workers. If salaries lag

way behind increases in the rate of inflation then there will

be erosion in the quality of life of the generality of the workers.

Therefore periodic wage increases is very much part of an

effective salary administration.”

Chief executive officer Global Analysis Derivatives Limited

Tope Fasua while acknowledging that wage increase does not

hold eternal emancipation for workers anywhere in the world

noted that it is important for government to pay living wages.

“There is no way wage increases can lead to the eternal

emancipation of workers anywhere in the world. The effect will

at best be a temporary reprieve until prices catch up with the

new wage levels” Fasua (2011).

“That said it is important to note that the Nigerian

government and companies need to pay living wages to their

workers. I think that is what Nigerian workers are demanding.

It is important to note that the world over at best only 10

percent of the population of any country can be said to really

be financially emancipated.

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“The situation is worse in developed countries where people

merely live from one salary to another while worrying about

the huge overhang of debt that they have been pressured to

acquire as a result of the wrong economic paradigm of

capitalism which their countries believed in.” But there are

others who argue that wage increase may have adverse effect

on the economy. Therefore the research will focus on impact

of minimum wage fluctuation on growth of Nigeria economy.

1.3 OBJECTIVE OF THE STUDY

The broad objective of this study is to evaluate the impact of

minimum wage fluctuation on growth of Nigeria economy .The

specific objectives of the study include to:

i) To evaluate the effect of minimum wage fluctuation on

economic growth in Nigeria

ii) To determine their adequacy minimum wage in the light

of the current economic realities and cost of living index as

it affects the economic growth of Nigeria.

1.4 JUSTIFICATION FOR STUDY

At the intellectual levels the study examines some alternatives

or contending paradigms on minimum wage fluctuation in

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particular econometrical and empirical underpinning and

resulting conclusions as investigated by several researchers.

In this regard the study is regarded as a cornucopia of

authoritative information on the subject matter both in term

of wealth of data as well as its analytical insights. It is hoped

that the study will appear to a wide variety readers including

not to current but future economic policy decisions makers

and planners to enhance their decision making ability but

also to student of economics finance business

administration and cognate endeavors but also researchers

who will find as a germinal contribution and stimulant of

further researcher in the field.

1.5 RESEARCH HYPOTHESES

1. Ho: there is no significance relationship between

minimum wage increase and economic growth in

Nigeria

Hi: There is significance relationship between

minimum wage increase and economic growth in

Nigeria

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2. Ho: There is no significant relationship between

minimum wage increase and fluctuation in

composite consumer price index

Hi: There is significant relationship between

minimum wage increase and fluctuation in

composite consumer price index.

1.6 SCOPE OF STUDY

This study uses data set covering a period of twenty-nine (29)

years from 1980-2010. Central Bank of Nigeria (CBN)‟s

Statistical Bulletin which is the main source of data used in

this research. A long period of study like this will provide an

insightful behavioural characterization of minimum wage

fluctuation on the growth of Nigeria economy.

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