It is with great honour that I take this podium to address the distinguished members of the premier university, the University of Ibadan, to discuss issues that bother on our polity and affect us as a people and nation. I am told that I am the first non alumnus to use the platform of the University of Ibadan to deliver a lecture. While I am not too sure of the reasons of my choice, I am however particularly grateful and humbled for this unique opportunity, hoping that the fruit of our interaction today will spur us as public servants into making our society a better place. This is because the public servants are the purveyors of development of any government.
The current state structure was institutionalised by the Treaty of Westphalia (of 1648) which ended the Thirty Years War and the dominance of religious authority in Europe. Thus, the State became “a legal and political organisation with the power to require obedience and loyalty from its citizens.” The state must in return make some basic provisions available to its citizens. These basic provisions include freedom from fear, provision of basic amenities and fair remunerations for those who are employed by its institutions.
In examining the extreme case of provision of basic amenities, welfare states of the more advanced world come to mind. The welfare state is that posture of governance in which the state plays a major role in provision of economic and social goods to its citizens, thereby ensuring their wellbeing. This is based on the principle of equity in distribution of wealth, social insurance, health, etc. This process is financed by compulsory contributions from more taxable individuals and corporate bodies.
It is no secret that many developing nations (Nigeria inclusive) lack the capability to make such provisions available to their citizens. The consequence is prevalent poverty across many aspects of human society. I have therefore elected to interact with you on “Minimum Wage and Enhanced Productivity in the Public Service” because when debates on the subject are carried out, the benefits that are accruable from remunerating workers are basically ignored. Indeed, monetary compensation is arguably one of the most important means of motivation in a work environment. And since the public service aims at providing service, it is envisaged that such compensation will engender growth in not only the public but also the private sectors of the economy. Additionally, such financial benefits should trickle down to the generality of the society.
There is therefore the need to interrogate the conception of minimum wage, its benefits, issues and challenges. This is with the view to proffer solutions on the way forward to tackling the perennial challenges that emanate from the minimum wage saga.
The International Labour Organization (ILO), defines “Minimum Wage as a wage which provides a floor to the wage structure in order to protect workers at the bottom of the wage distribution.” The ILO further points out that minimum wages are a nearly universal policy instrument that applies in more than 90 percent of International Labour Organization member states, including Nigeria. As the ILO further noted, minimum wage must take a legal perspective that must have the backing of force by law and be enforceable under threat of penal or other sanctions. It is this aspect of the minimum wage saga that generates the heated battles between labour organizations and governments.
Besides that minimum wage process articulated by the ILO and related bodies, other organizations such as the Ethical Trade Initiative (ETI) have become embroiled in the minimum wage debate. ETI defines a concept it called living wage as “a wage that allows a worker to provide for him or herself and family; to buy essential medicines, send children to school and to save for the future.” We can also categorise another form of wage: poverty wage, which the ETI has associated with the following signs:
- Workers skipping meals so they can feed their children
- Indebtedness – borrowing from neighbours and/or loan sharks
- Cutting out 'non essential' expenditure e.g. medicine, clothing
- Taking on extra work, e.g. homework or another factory job.
From the foregoing, it is evident that a country might have a minimum wage backed by law while in terms of real value it may be worth nothing. The value might have terribly depreciated especially in an economy marked by frequent uncontrolled inflation as in the Nigerian situation, where many cry that “their take home pay cannot take them home.” The import of this is that the existing minimum wage was no longer realistic, hence the cry for living wage. Gertener captures it thus:
A living wage is more than money, it is something about the force of a moral proposition; first, that work should be rewarded; second, that no one who works full time should have to live in poverty.
Flowing from this, a living wage is seen as a decent wage. It affords the earner and her family the most basic cost of living without need for government support or programmes. With a living wage an individual can take pride in her work and enjoy the decency of a life beyond poverty, beyond an endless cycle of working and sleeping, beyond the ditch of poverty wages. It is thus instructive that a living wage is not just a wage, since minimum wage attempts to cover only the very basic necessities and do not even account for savings or emergencies, living wage goes beyond this, it is only one small step towards a truly just wage.
The genesis of minimum wage can be traced to Victoria Australia in 1824, where an amendment to the Factories Act provided for the creation of a wages board. The wages board did not set a universal minimum wage; rather it set basic wages for six industries that were considered to pay low wages. However, it was New Zealand also in 1824 that enacted the first national minimum wage law that unlike the wages board of Victoria Australia was enforced by compulsory arbitration.
Minimum wage has a strong social appeal, rooted in concerns about the ability of the state to provide for the least able members of the workforce. This has led some people to ask for the redefinition of the wage structure politically to achieve a socially preferable distribution of income. Therefore, minimum wage laws have usually been judged against the criterion of reducing poverty. Although the goals of the minimum wage are widely accepted especially in countries like Nigeria where there is no form of social security policy for the citizens, there is however, a great disagreement as to whether the minimum wage is effective in attaining its goal or not. Indeed, from the time of its introduction, minimum wage laws have been highly controversial politically, and have received much less support from economists than from the general public. Suffice it to say that, despite decades of experience and economic research, debates about the costs and benefits of minimum wage continue today.
The living wage obviously differs from the Minimum Wage in that the latter is set by law and can fail to meet the requirements of a living wage or is so low that borrowing of application for top-up benefits is necessary. It differ somewhat from basic needs in that the basic need models usually measures a minimum level of consumption without regard for the source of income.
Wage Review in Nigeria
One of the duties the government owes its citizens is to ensure the welfare of her citizens. Nigeria is no exception as captured in section 14(b) of the 1999 constitution which states that “the security and welfare of the people shall be the primary purpose of government.”
Trade unions in Nigeria (like their counterparts in other parts of the world) are the major bodies that represent the Nigerian workers in such matters as the agitation for wage increases and other benefits. These organs, the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) have had a long running battle with the government on the subject.
One way through which attempt has been made to realise this is the legislation of a national minimum wage. It is important to know that Nigeria pay structure and income policy predates the nation. For instance between 1934 and 2008 over 31 commissions and committees were set up to undertake either a holistic or partial review of salaries and wages in the public service. This was in apparent realisation that the workers could no longer survive on what they earn, since those who work also have to support their families who form part of the huge army of the unemployed. But this did not go without intense agitation by the workers. The NLC captures it thus:
Between 1945, when workers staged the 45 days strike for a cost of living allowance (COLA) and 2007, when the demand won by workers for a 25% general wage rise through the Ernest Shonekan Wage Consolidated Committee was arbitrarily cut down to 15% by Obasanjo, workers have struggled over 15 times to have wages improved a natural minimum wage legislated upon.
In the 2000 Wage Review Agreement 25% wage increase with effect from May 1, 2001 and 15% wage increase with effect from May 1, 2002 was proposed. This was not implemented, this led to an industrial dispute and a 121/2 percent salary increase as against the 35% negotiated was signed in 2003. A situation painted thus:
Only an increase of between it and 12 percent was implemented by the federal government. Although the Shonekan Committee was set up against this background and recommended a 25 percent increase in salaries, Obasanjo unilaterally implemented a 15 percent increase in 2007. Government also failed to abide by the time frames set up for subsequent negotiations with workers.
The import of this position of NLC is that wage reviews were largely unstructured; as sometimes, negotiated wages were allegedly changed over night by government through circulars, at other times it was claimed government unilaterally effected wage increase. This state of affairs the workers insist led to the frequent strike actions aimed at getting government to agree to negotiate a new minimum wage and a general upward review of wages.
The NLC in 2009 succinctly gave several reasons why the review of wages had become highly imperative; we shall list some of them here.
• The consequence of the abdication of the agreed approach to the implementation of the phased wage increase has been that wages and salaries are today sharply depressed and incapable of meeting the basics needs of most workers.
• In the last one year, inflation has intensified with the cost of living index in the urban sector increasing by over 14 percent. The disproportionate increase (20.9 percent) in the cost of food means that erosion in the real wages and salaries of workers is alarmingly severe.
• The process of monetizing and consolidating in kind benefits which were hitherto not taxed has resulted in an escalation of the tax paid by workers. This has further depressed the real take home pay of workers.
• All over the world, salary increase in the public sector underlined by the principle of equity and the need to bridge social inequality in the face of widening economic and social gaps amongst citizen of a country.
In 2008, the NLC thus presented a new minimum wage demand to the Federal government which was fixed at N52,000. The tripartite negotiations constituted by representatives of Labour Union (NLC and TNC), the Federal Government and the National Employers Consultative Assembly (NECA) began negotiations in 2009. Twenty state governments submitted memoranda which contained suggestions of the various amounts they could pay. The suggestions are as follow: Abia (N46,700); Anambra (N25,00); Imo (N40,000), Kwara (N30,000), Jigawa (N20,800), FCTC N25,000), Kebbi (N30,000); etc. Plateau and Ebonyi States made the lowest recommendation of N10,000. Although the average of the sum total suggested amounted to N24,000, the NLC after considering the economic situation, prevailing revenue allocation formula and the ability of private and public employers, consented to an even lower figure of N18,000.
It is interesting to note from above that the state governors were all willing to pay above the N18,000 new national minimum wage was accepted by NLC. However, after it was signed into law by President Goodluck Jonathan in late March 2011, implementation of the new wage became a problem. This again led to a face off as the NLC government issued a two week ultimatum which took effect from the 30th of June 2011.
Benefits of Minimum Wage to Enhanced Productivity in the Public Service
Many benefits are accruable from the new national minimum wage package. This is because minimum wages has a technical inversely proportional relationship with poverty and unemployment. This simply means that increase in minimum wage should result in reduction of poverty and unemployment. Some of the benefits are summarised below:
1. Creation of Employment: the increase in national minimum wage will create more employment in the sense that a worker whose earnings have increased may decide to give up such menial jobs laundry and basic errands. Also, those who engaged in extra-official jobs to make ends meet may also give them up. This will obviously create vacancies in those positions.
2. Creation of Wealth: increase in wages elementarily creates more wealth for those who can put their resources to good use. The extra revenues may be invested in certain other money making ventures. These revenues may also be put into achieving better education for their wards, thereby creating future wealth.
3. Job satisfaction: there is no doubt that job satisfaction can result from increased monetary compensation. This can make employee value their jobs more because more of their basic needs are met from their efforts at work.
4. Improvement in basic living conditions of the workers: basic living conditions of the average worker can also be improved from an increased minimum wage. This can come in the form of home amenities, improved health care, food security and even the addition of aesthetic value to the immediate environment.
5. Improved productivity in the public and private sectors of the economy: job satisfaction and improvement in basic living condition can motivate an employee to improve his or her productivity. This also affects the private sector as the private business owners are also required to comply with the new minimum wage structure.
President General of TUC, Comrade Peter Esele made this clear when he maintained that the new wage bill is binding on all employers of labour – federal, states or private sector employers to pay. According to him:
For the first time, we want to make it a law that any minimum wage decided at the federal level will be binding for every employer of labour in Nigeria. We want to make a law so that we can use it in holding erring states, companies and establishments liable for defaulting to pay.
6. Brain Drain Check: one of the objectives of increased minimum wage is to benchmark intentional standards. This will help check brain drain, which is the emigration of professionals and other highly skilled worker to particularly the more advanced economies.
Issues and Challenges to Minimum Wages Process
It must be noted that most of the benefits stated above are idealistic in the sense that workers may or may not take advantage of the new minimum wage. Rather than enhance their productivity, some workers may have their appetite whetted by the pay rise. Successful implantation of the minimum wage in Nigeria (like in most other parts of the world) will therefore continue to be challenged by a number of factors. It is necessary to identify these challenges so that solutions will be proffered to them. The most important of such factors is perhaps insufficient revenue, incessant call for wage review by civil servants and their inability to justify such demands. Other challenges include limited sources, corresponding wage and commodity increases in the private sector, etc.
1. Insufficient Revenue
As we noted earlier, most of the state governor proposed an even higher minimum wage prior to NLC benchmark of N18,000. It was shortly after President Goodluck Jonathan signed the bill into law that the impracticality of the implementation of the policy came to light.
The current revenue sharing formula is such that the Federal Government gets 42.6 percent of total revenue, while the 36 states, the Federal Capital Territory (FCT) and the 774 local governments share the remaining 47.4 percent. The position of the state governors is that there should be a review of this formula to help them meet the challenges of paying the current minimum wage.
It was on this premise that Governors Babatunde Fashola of Lagos, Sule Lamido of Adamawa, Danjuma Goje of Gombe, Godswill Akpabio of Akwa Ibom and Ikedi Ohakim of Imo State (at the Council of States meeting last year), called on President Jonathan to insert a clause in the Minimum Wage Act to make allowance for the different states to negotiate what they could afford to pay. Governor Goje opined that “some states are richer than others and while some can pay, others may not be able to pay and taking into consideration that we are a federation, we can negotiate....”
Alhaji Ahmed Matane of Niger State noted that the state, having a total of 33,000 employees, may not be able to pay the national minimum wage of N18,000. He noted the state has an average monthly statutory allocation of N2.2 billion, out of which about N1.6 billion was required to pay salaries and pensions. This means that only N600 million would be left for capital projects and payment of overhead costs to MDAs. According to him, “the new minimum wage will affect capital projects. That is why we are looking for ways to manage the matter because most of the monies the state receives as statutory allocation are used for payment of salaries.”
Similar concerns were expressed by other states, including Oyo. Ekiti, Ogun, Kwara and Osun States, Kogi, Benue, Sokoto, Yobe, Abia, Imo, Enugu, Ebonyi, Adamawa and Borno.
2. Incessant and Differential Call for Wage Review
Understandably, every worker would want to take home the best available remuneration, but the practicality of this should be put into consideration. Towing the same line of argument on the negative consequences of perennial wage increase, Shafiu Ibrahim Abdullahi noted:
From an economic point of view, continuous wage increase is not justifiable. In fact it is ruinous to the economy. There are two main consequences of continuous wage increase, general and persistence rise in the price of goods and services, and reductions in the number of jobs available. Frequent increase in wage has the tendency to become an inflationary shock that is associated with sudden increase in the general price of goods and services. At one hand, the demand for wage increase force producers to increase the price of goods and services in order to cover the cost of wage increase, what economists call wage cost push inflation. On the other hand, the mere expectation of increase in wage makes traders' mouth to salivate on the coming prospect of increase purchasing power on the part of workers. Therefore, makes traders to move the prices of goods and services up.
There is also the problem of different government agencies calling for differential wage packages. While some may be justified because of the nature of their jobs, others may not be. The Acting Inspector- General of Police, Mohammed Abubakar, has advocated a N50,000 minimum wage package for a constable in the police force. He noted that such minimum wage will go a long way to boost morale and promote efficiency. While there may be some justification in this call, it would also prompt other security agencies to make similar calls.
It is interesting to note that while the new minimum wage is fixed for N18,000, some states governments are willing to pay more to improve the quality of life within their immediate environment. For example, the Ondo State Governor, Dr. Olusegun Mimiko, has announced that it has approved the payment of N22,000 minimum wage with effect from April to all categories of workers in the state civil service.
One of the greatest challenges militating against the entire minimum wage process is arguably non-performance on the part of civil servants. Interestingly, they are the major recipients of the process. This non-performance comes in various categories of acts of indiscipline, corruption, and other activities that undermine productivity.
The consequence is that public companies that are supposed to run efficiently and generate recourses for the government and people of Nigeria perform at minimal levels, or are at worse grounded. A good example is the government owned Telecommunications Company that has not been able to live up to its billing and compete with other privately owned mobile communications companies. Similar or even worse tendencies are displayed by most government agencies.
As Nasir El-Rufai noted,
It is the inability of the public service to update its attitudes, Working methods, skills and technology. The public service has been short-term in its vision, self centred in policy formulation and corrupt in programme implementation. Instead, it has focused on taking care of itself and interests to the detriment of the nation and the system which sustains it.
Considering the dwindling fortunes of government, it is imperative that the revenue profile of government must be shored up if government must meet all its statutory obligations to the people. This calls for the cooperation of the public servants. It then suffices that the public servant of today must partner with government in the area of wealth creation. It is therefore pertinent that they wake up from their slumber and to justify present and future calls for national minimum wages increases.
It is instructive to note that the main argument advanced by the organised labour to demand for rise in pay (i.e. the worthlessness of the former minimum wage due to inflation) is also the main plank advanced by opponents of increase in minimum wage. Their reason is that whenever there is a wage increase, inflation eventually erodes the purchasing power of the worker who had just had a wage increase.
This position apparently made meaning to the then Acting Chairman of the People's Democratic Party (PDP) Alhaji Karou Baraje when he said:
Nigerian Workers should rather agitate for massive infrastructural development in the country instead of the N18,000 minimum wage. He said agitation for new minimum wage was unnecessary if there were well equipped hospitals, drinkable water and good road among other facilities in a way that will be accessible in all the parts of the country. I think in the last seven years, we are witnessing the third agitation for further minimum wage.
As Eme and Ugwu put it, “rising prices is unavoidable when minimum wage is increased. Inflation, therefore, becomes inevitable. If left untamed, the value of the national minimum wage soon begins to dwindle. As inflation exerts upward pressure on the exchange rate imports become more expensive, so also would be life.”
Similarity, Dr Godwin Akporodje of the Nigerian Institute of Social and Economic Research, (NISER) argued that the new N18,000 minimum wage would trigger off inflation at about 23.2 percent. It was also argued that in a trading economy like Nigeria, where the trading sector accounts for 18% of GDP, such a wage increase can translate to demand pull inflation. Inflation is therefore a major challenge in the minimum wage process in the country.
6. Enforcement of the Act
As we noted in the conception of minimum wage above, ILO insists that legislative backing of the minimum wage act is very important. Without the ability to enforce the process, the whole exercise that culminated in the new national minimum wage act would be in vain. The enforcement of the minimum wage act should include effective enforcement mechanism, appropriate penalty for offenders and compensation to workers whose rights have been violated.
The major limitation to the enforcement of the minimum wage act is the fact that government organisations and other powerful non-state entities are usually the employers of labour. It therefore becomes obvious that the imposition of sanctions and other legal processes may not be timely and fruitful in the resolution of such conflicts. There is therefore the need for government and other employers of labour to be sensitive to the welfare of their workers.
The impact and usefulness of a minimum wage policy depends on whether minimum wages are paid. This, in turn, depends on the effectiveness of the enforcement mechanism such as penalties for violators, adequate compensation for workers whose rights have been breached and suitable resourcing of the enforcement authority. As the World Development Bank puts it, “minimum wages may help protect the most poverty-stricken workers in industrial countries, but they clearly do not in developing nation?” Two reasons are responsible for this: i) coverage and enforcement of minimum wage laws in developing countries are limited to a small formal sector that is responsible for enforcing the act in the rather large informal sector; and ii) low poverty lines in developing countries deprive the poorest of the poor from benefiting from minimum wage increase.
7. Other Backlashes
In a bid to meet with the minimum wage requirements, some states are likely to cut on certain services or even take some unpopular policy decisions. The backlashes that can result from the minimum wage saga are likely to even undermine any benefit that may be accruable from the entire process. For example, the Abia State Government recently gave orders that resulted in the sacking of non-indigenes in the state. This decision was based on the fact that it needed more space and revenue to accommodate its indigenes.
Important sectors of the society such as education and health may also be affected. The Ebonyi State Government recently stated that it may stop financing a section of its free education policy. The section in question was the certificate examination of its final year secondary school students which it was financing.
Conclusion and Recommendations
From the above, we can conclude that the new national minimum wage is an essential factor in the enhancement of productivity in not only the public, but also the private sector of the nation's workforce. This is a necessary driver for the advancement of socio-economic and developmental progress.
There are however issues and challenges that militate against the smooth processing of this theoretically ideal situation. In view of this, the under listed recommendations are proffered:
1. From the perspective of the state governments, inequitable distribution of resources is a major hindrance to their ability to comply with the new wage structure. There should therefore be an upward revision of the present revenue sharing formula.
2. The state should also look inward and find ways to harness the abundant human and natural resources that every state of the country is blessed with. They should also endeavour to cut down on basic running costs and put a check on corruption and other practises that impact of their finances.
3. Civil servants should take a more positive and proactive approach to the services they render. This will not only create wealth for the state but also justify present national minimum wages and the call for future increases.
4. Revision of the minimum wage is necessary to benchmark rising cost of living and international trends. Consideration should however be given to economic and financial realities of the country.
5. There should be acts of legislature that will encourage the various arms of government to improve on social services. These should be in the areas of health care, education, housing, transportation and other social infrastructure. This will reduce the incessant clamour for wage increase.
6. It has often been said that the dependent on oil revenue is inimical to the economic growth of the country. This again comes into play in the processing of the new national minimum wage. Non-oil sectors of the economy should be harnessed.
7. Inflation is also a major factor militating against the minimum wage process. Economists and related government agencies should join forces to find ways to check inflation.
8. Enforcement of the minimum wage act should be treated with equal importance as the laws that back the process. Appropriate penalty should be defined to deter offenders.
Karen Mingst, Essentials of International Relations (New York: Norton and Company, 1999), p. 19.