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 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 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.
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 N18,000 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 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.