Minimum Wage and Inflation

By Drew Povey

We all know we are poorer now than 5, 10 or 20 years ago. And yet the corrupt elite have never been richer – as demonstrated by the monetisation of the APC and PDP presidential primaries.

The economy grew to three times bigger in real terms in the first 15 years of the 21^st century. In the first six months of 2022, the economy grew at rate that would see it doubling in little more than 21 years.  But for most people the story is very different.

The National Bureau of Statistics announced that the cost of kerosene and cooking gas had both increased by around 150% in the year to November 2022. Kerosene now costs more than N1,000 a litre. In addition, the law allows electricity companies to increase the cost of electricity twice a year, as they did in December 2022.

The latest figures for food inflation (November 2022) show that it has increased by nearly 25% over the last year. The cost of rice has increased by up to 50%. The three main contenders for the post of President are all agreed that the fuel subsidy will be removed from June of this year adding to the transport costs for workers.

How can workers afford to buy or cook their food if the minimum wage is only increased every five years or more?

Losing value of minimum wage

When the minimum wage was introduced in 1981 it was worth about $200 a month. Now it is worth less than $50. When the minimum wage was increased to 18,000 naira in 2011, it was then worth around $120 a month. Eight years later when the current minimum wage was introduced its value had fallen to only $83.

Workers may win the occasional battle for a decent minimum wage, but overall the war is being lost. A major reason for this is the very infrequent increase in the minimum wage. Since the end of the military era, the minimum wage has only been increased three times. That is an average of once every seven years (with inflation at 20% that would need an increase of over three and a half times – 350% just to keep up).

Most governments increase minimum wage annually

In contrast, many governments across the world increase their minimum wage every year as is the case in Britain (1^st April) and France (1^st January).  According to the International Labour Organisation:                                                          

Most frequently, countries adjust their minimum wages once a year. Some countries, adjust rates every six months, while others have 2-years intervals. Annual adjustments seem adequate in periods of low or moderate inflation

http://www.ilo.int/global/topics/wages/minimum-wages/setting-adjusting/WCMS_439254/lang–en/index.htm

According to the World Bank (December, 2022), in Nigeria: “consumer price inflation has surged and is currently one of the highest globally.”  So the minimum wage should be increased at least annually.

The Federal Government agreed increases in the following two years in 2001:  15% in 2002 and 25% in 2003 (not implemented). We need this approach to be generalised and introduced in all negotiations over the minimum wage.

Indexation against inflation

Ideally, salaries should be indexed against inflation, as happened in France from 1952 to 1983. It was abandoned by the Socialist president, Mitterrand. It has been maintained in Belgium and in India, Bangladesh and Pakistan, at least for the public sector.

The Dearness Allowance is an allowance paid to government employees, public sector employees and pensioners in India, Bangladesh and Pakistan. The allowance is paid every month. It is calculated as a percentage of the basic salary and related to the rate of inflation. It is increased every six months. It was introduced in the early 1920s.

Lagging behind inflation

The National Bureau of Statistics says that inflation is now around 20% a year. Officially food price inflation has been 450% since 2011 so the minimum wage would have to increase to at least N80,000 to maintain the same buying power that it had a decade ago.

The last time the minimum wage was increased in Nigeria was in 2019, this was eight years after the previous increase in 2011. The increase to N30,000 became law in April 2019 (three years late). Several states have still yet to implement the last increase nearly four years later!!

Comparison with other African countries

We are doing worse than many other African countries in terms of the monthly minimum wage, for example:

• South Africa – $242
• Kenya – $140
• Democratic Republic of Congo – $125
• Chad – $102
• Senegal – $94

So all these countries pay well more than the minimum wage in Nigeria which is around $50 at the official rate (or $26 dollars according to the World Bank). In contrast, members of the National Assembly are paid higher than almost any country in the world. From 1st September 2022 the Duty Tour Allowance (DTA) for ministers was increased from N35,000 to N80,000. As a result, Buhari and other ministers will now receive nearly three times the current monthly minimum wage every day they are out of the country!

NLC and the minimum wage

The Nigeria Labour Congress (NLC) Charter of Workers Demands calls for a:

Reasonable Living National Minimum Wage for Nigerian Workers and the Review of the same periodically as the national economic situation demands.

In 2015, when Buhari came to power, the Federal Budget was on N4 trillion, this year the budget is over N20 trillion or five times as much. If the minimum wage had increased as much it would now be worth N90,000 a month. In 2015, the monthly average income in Nigeria was around N45,000 now it is now at least N100,000.  That is an average for every woman, man, child. 

So for an average family of five people that would be an income of N500,000 a month. So to have an income of only half the average income for Nigeria, with both the husband and the wife working, they would need an income of at least N125,000 each.

When Buhari assumed office in 2015, the National Minimum Wage of N18,000 could buy one and a half 50kg bags of rice. But today, the Minimum Wage of N30,000 can hardly buy even one bag.

Another way to look at this is to show how many litres of fuel could be bought with the minimum wage:

In 2000, the per capita monthly GDP was around N4,000 now it is at least twenty five times bigger in money terms.  But the minimum wage is only 10 times bigger.

No-one can survive on N30,000.  So this is a major cause of crime and insecurity.

What can the trade unions do?

We all know that the NLC is loosing the battle for decent wages, we know that we can buy less with our salaries than we could five years ago or ten years ago. The minimum wage now is worth well less than half of its value a decade ago.

In October 2022, Oxfam issued the fourth edition of its report on government commitments to reducing inequality. Shockingly, Nigeria is the third worst country in the world. Worse, Nigeria is bottom on labour rights. Oxfam recommended that the minimum wage should be increased to N100,000 and then increased each year as in most countries.

It is not that there are no strikes.  We have had the wonderful strike for 8 months by ASUU and the strike by the research workers for over a year.  But these are not active strikes and NLC and TUC did not provide the needed solidarity of a general strike.  They have not even taken on the governors that they say have still not introduced the current minimum wage.

In May 2021, the NLC demonstrated how to win in its fight with the Kaduna Governor, el Rufai. In only three days of active strike action it brought one of the most powerful governors to his knees. Towards the end of July 2022, the NLC organised wonderful protests in every state capital.

We need this kind of action to win a decent minimum wage and to ensure that it is increased every year to retain its purchasing power. All the industrial unions can take action on their own, but also to push the NLC to take the necessary action.