A Critical Look at Benefits of an Increased National Minimum Wage in Nigeria

National Minimum Wage in Nigeria

By Kenechukwu Aguolu

Increasing the national minimum wage in Nigeria should be viewed as a strategic decision with numerous benefits. Given the widespread issue of underpayment of workers, a thoughtful raise in the minimum wage would bring about extensive positive benefits that outweigh any potential drawbacks.  It also reinforces a fundamental principle: the right of workers to receive fair wages. Embracing this perspective highlights economic wisdom and demonstrates a commitment to fairness and societal progress.

A key benefit of increasing the minimum wage is the potential boost in employee motivation and productivity. Reasonable wages motivate employees, enhancing their commitment to their jobs and increasing their productivity and innovativeness Higher wages reduce employee turnover, lowering recruitment and training costs, and fostering a more experienced and skilled workforce. This increase in productivity can contribute significantly to the nation’s Gross Domestic Product (GDP) in the long run.

One of the major issues facing Nigerian workers today is low purchasing power, which has led to a decrease in demand for goods and services. This demand reduction negatively impacts the turnover and profitability of many companies. If this trend continues, some companies might be forced to close down or lay off staff to stay afloat. An increased minimum wage would enhance the purchasing power of employees, leading to higher demand for products and services a basic item like sachet water, which costs fifty naira in parts of Nigeria, has seen reduced demand as people choose to boil and filter their tap water. Better wages will stimulate economic activity thereby boosting sales and profitability for businesses.

An increased minimum wage will contribute to reducing insecurity and fraud in Nigeria. The fraud triangle theory identifies pressure as one of the main factors driving people to commit fraud. Workers who earn insufficient wages may be pressured into criminal behaviour to make ends meet. Similarly, children from financially strained families might be forced to fend for themselves at an early age, increasing their risk of engaging in criminal activities. With a reasonable minimum wage, the pressure on families would be alleviated, reducing the incentive to engage in crime. Furthermore, as businesses thrive with increased consumer spending, business owners will have more resources to support their families, further contributing to social stability.

Better wages improve workers’ standard of living, thereby enhancing life expectancy. Financial pressure is known to cause health issues such as high blood pressure. Additionally, poorly paid individuals are less likely to afford proper healthcare. In Nigeria, many lack health insurance, and even among the insured, dissatisfaction with service delivery is common. With higher wages, individuals can better afford healthcare services, resulting in improved health outcomes and prolonged life expectancy

An increased minimum wage will reduce brain drain; a situation where highly skilled Nigerians leave the country searching for better opportunities abroad. This exodus of talent negatively impacts the nation’s economy by depleting its skilled workforce, which is crucial for innovation, development, and competitiveness. By offering more competitive wages, Nigeria can retain its talented professionals; ensuring that their skills and expertise contribute to the nation’s growth and development.

The government stands to benefit from an increased minimum wage through higher tax revenues generated by increased economic activity. As businesses expand and profitability improves, tax contributions from corporate income tax, value-added tax, and personal income tax are likely to rise. Additionally, a healthier and more financially stable workforce can reduce the government’s expenditure on social welfare programs.

Some argue that increasing the minimum wage could lead to wage-push or cost-push inflation, resulting in higher prices for goods and services. However, it is important to note that due to industrialization and technological advancements, labour costs often constitute a relatively small fraction of the cost of goods and services in many companies. Moreover, the improvement in workers’ productivity resulting from higher wages will lead to greater labour efficiency; which will offset some of the increased costs. Therefore, the inflationary impact may be less significant than feared.

Indeed, while acknowledging the inevitable rise in operating costs for businesses, it’s essential to recognize that the impact will be more pronounced on smaller enterprises unable to capitalize fully on economies of scale. Initially, such an increase may precipitate job losses as businesses strive to adapt to the change. However, in the long run., as productivity escalates and consumer spending surges from the augmented purchasing power stemming from higher wages, businesses may be compelled to expand their workforce to meet escalating demand. This cyclical effect has the potential to stimulate job creation and fuel economic growth, underscoring the transformative power of strategic wage adjustments.

In conclusion, a reasonably increased minimum wage in Nigeria provides various benefits, including enhanced employee motivation and productivity, increased purchasing power, reduced insecurity and fraud, improved health outcomes, and greater economic activity. While there may be some short-term challenges, particularly for small businesses, the long-term benefits for the government, businesses, citizens, and the nation are substantial. An increased minimum wage is both an economic necessity and a critical step towards a more prosperous and stable Nigeria.

Kenechukwu Aguolu, a Business Analyst, Project Manager, Chartered Accountant, and Public Affairs Analyst, writes from Abuja, and can be reached via [email protected]

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