Of Inflation and minimum wage demands in Nigeria

Thanks to the return to civilian rule in 1999, unionism has gathered far much clout that a simple threat of Nation wide strike is enough to put governments back to their senses. If the present scenario is to be compared to period of military rule when the National Labour Congress (NLC) and Academic Staff Unions of Universities, where muscled to silence (in fact banned), it is obvious labour unions have transformed into the most powerful pressure group in Nigeria. The last threat by NLC to throw the country into industrial strike on the issue of minimum wage was something of a political bomb to the young administration of Jonathan who is facing an election come 2011. The desperation with which Jonathan passed the minimum wage increase has made some state governments to rush into telling the world about the difficult economic circumstance they are in now.

Is the perennial agitation for minimum wage increase justifiable? This is the question many people have been asking. 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 good and service, and reductions in the number of jobs available. Frequent increases in wage have the tendency to become an inflationary shock that is associated with sudden increase in the general price of good and services. This is what has been happening since the agitation for wage increase becomes an annual event. At one hand, the demand for wage increase force producers to increase the price of good and services in order to cover the cost of wage increase, what economist called 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 good and service up.

In general, inflation is not healthy for any economy, it is associated with distortion in price mechanism that acts as signal to investors, consumers, producers and even policy makers. Inflationary shocks like the continuous up ward movement in salaries and wages without associated rise in Gross Domestic Products (GDP) produce no increase in real wage, therefore, leave workers where they were before the increase. No foreign investor will put his money in a country where the rate of inflation is on the high side for fear of erosion of his margin. The most attractive destinations for foreign investment around the world are known for their low rate of inflation and fiscal prudence. The production of goods and services in an inflationary economy tend to be tricky as producers have to base their operations on some kind of inflationary expectations in order to avoid operating at a loss. It is in order to have a firm grip on inflation, that economies around the world grand autonomy to Central Banks in matters of monetary policy. But when wages are on the increase without corresponding increase in productivity as is happening here in Nigeria, the country monetary policy and indeed it macroeconomic policies shall be call to question.

At a time when revelations are emerging that the Nigerian national assembly is consuming about 25% of the country’s current expenditures, the labour unions have reason to demand for increase in their own cut of the national budget. That is in fact truer in a country where ‘if you can’t beat them join them apply’. In an economy characterized by history of high inflation rate, unstable macroeconomic environment and non implementation of annual budget, runaway expenditures will only help to increase the country’s economy woes. Truly workers deserve something better than what they are getting under the present circumstance. But should that be only through increase in money wage? Why should not workers demand for improve working condition so as to boost workers productivity? Continuous issuing of threat of strike on wage increase without commiserate demands for government to do things that will help people that are not on government pay will undermine unions causes in the long run. Nigerian labour needs to work harder to represent themselves as champions of public services rather than simply as defenders of their pockets.

Over the years Nigeria has become a nation of increasing labour grow rate in a highly segmented labour market. But when that is compared with the increasing rise in unemployment in the country, a different image appears that of a nation whose labour market is highly biased in favor of those who know somebody who is ‘somebody’ in the government. While labour unions are busy lobbying for hike in their wages, hundreds thousands of graduated are languishing in the labour market going helter-skelter from one corner to the next looking for jobs which do not exist. Are the labour unions blind to this reality? In academic economics there is the popular Philips curve, which explains a relationship between increase in money wage in one hand and unemployment on the other hand. It says that the higher the increase in money wage the higher will be the unemployment rate. At what point shall Nigerian labour sacrifices increase in wage for government commitment to increase employment in the country? Many state governments have already said that they can only pay the current minimum wage by retrenching more workers; this means that only those workers who remain in the employment of government will enjoy the rise.

To explain the natural movements in wage in Nigeria we have to go back to the relationship between Demands and supply of labour in the country. In an environment where the supply of labour is higher than the demands, the wage in such situation will be lower than where there is a higher demand for workers. This is the situation here in Nigeria. At this moment what Nigeria needs most is job creation not wage increase. I hope both the government and the labour unions will come to realize this and do what is needed of them instead of the “do me I do you” situation that obtain today, where government for fear of opposition do what labour demands instead of what the country demand of her.