SIMILOLUWA T. DARAMOLA[1]
ABSTRACT
The International Labour Organization (ILO) constitution of 1919 emphasized the provision of an adequate living wage as a major improvement in the labour market conditions which was re-affirmed by the ILO 1944 Philadelphia Declaration, where it was reiterated that countries should adopt a minimum living wage to protect the poor employed workers. As part of the Sustainable Development Goals of the United Nations in eradicating poverty and creating a better world for humanity, minimum wage remains the least earning that can accrue to any individual working in any country. Since all fingers are not equal, minimum wage connotes that due to the existence of opportunism and exploitation in the field of labour and industrial relations, no individual is expected to earn below an earmarked amount particularly for those below the social cadre so as to promote social protection. While any amount could be pegged as the least remuneration to be paid to employees by employers, the effectiveness and impact of minimum wage is still hinged majorly on good governance, just employment conditions, and the state of the economy of any country. Nigeria recently increased its minimum wage from N18,000 to N 30,000 and its potency in the light of the prevailing economic realities and trends is questionable. This paper analyzes the impact of the national minimum wage in Nigeria in comparison with selected jurisdictions. This paper further argues that while minimum wage as a general rule is key in improving standard of living of citizens, its potency in terms of its socio-economic dimension is largely hinged on good governance.
Key words: Minimum Wage, Decent Work, Social Protection, Sustainable Development Goals.
1.0 INTRODUCTION
Minimum wage remains a veritable weapon in the improvement of the standard of living of citizens of different countries across the world because its existence in the arsenal of humanity is needed in the eradication of poverty particularly in developing countries like Nigeria. This is as a result of the relative discrepancies in the standard of living of several citizens in developing countries compared with their contemporaries in developed societies. Living in the post Covid-19 economy comes with a need to evolve emergency social protection policies of which minimum wage plays an integral role in reducing inequality and creating decent jobs needed for sustainable development.
Minimum wage has never been a guarantee for wealth but only affords citizens a decent standard of living by setting citizens free from the shackles of poverty. While this narrative on minimum wage appears to be the tale of citizens in ideal climes, for Nigeria, the reverse is the case due to the empirical implications of minimum wage. This is owing to the fact that minimum wage has never been a top for government to fulfill its cardinal roles but has rather remained a grudging concession to organised labour without any commitment to implementation.
The aphorism that there is dignity in labour cannot be justified if wages are not equitable, fair, and crafted such that it creates an egalitarian society. A progressive society is one that provides justice for all irrespective of class, creed or means and minimum wage is that tool needed to bridge the gap between the rich and the poor. As Martin Luther King Jnr once said ‘the arc of the moral universe is long, but it bends towards justice’. Minimum wage is that arc which must do justice to the basic necessities of life to all particularly those below the social cadre. This paper critically examines the landscape of minimum wage in Nigeria holistically from the legal and socio-economic framework.
2.0 LEGAL FRAMEWORK FOR MINIMUM WAGE IN NIGERIA
The 1999 Constitution of the Federal Republic of Nigeria is the springboard from which all other laws derive their validity. This implies that the Constitution under the social contract theory reflects the aspirations of the citizens. However, chapter two of the Constitution which provides for the fundamental objectives and directive principles of state policy has been expressed as being unjustifiable. This means that the government has no legal obligation to comply with the provisions contained in the Chapter.[2]
Item 34 of Schedule 1 of the exclusive legislative list of the 1999 Constitution states that the federal government has the exclusive prerogative to prescribe a national minimum wage for the federation. This power has been exercised over the years through the enactment of the Minimum Wage Act.
The Minimum Wage Act 2019 is the major legislation governing matters relating to the minimum wage. Section 3 (1) of the Minimum Wage Act pegs the minimum earning of an employee to N30, 000 monthly. Although certain employees employed on a part time basis, seasonal period, commission or piece rate, employees in an organization with less than twenty five employees are not mandated to pay the minimum wage.
Section 37 of the Personal Income Tax Act states that minimum tax shall not apply to persons earning the National Minimum Wage or less. This is to the effect that minimum wage earners have been exempted from personal income tax so as to promote social protection.
3.0 MINIMUM WAGE AS A TOOL FOR SUSTAINING DECENT WORK
The formulation of policies geared towards the tenets of decent work is essential in creating equitable and just employment opportunities for all. This is because minimum wage bridges the unemployment gap in developing countries by encompassing three out of the seventeen Sustainable Development Goals of the United Nations namely decent work and economic growth, reduction in inequalities, and partnership. Well-designed and effective minimum wages can contribute to the realization of these goals. Imperatively, while minimum wage never holds the magic wand in transforming any individual to a billionaire overnight, ensures that the standard of living of the average citizen is reasonable through access to the basic necessities of life. Poorly-designed minimum wages, by contrast, can put workers’ well-being at risk, undermine effective implementation, and risks encouraging informality.[3]
There is a strong relationship between minimum wage and decent work because the impact of a rise in the minimum wage on income and employment conditions of workers is an extremely important and controversial topic. Among other things, higher minimum wages can have a significant positive effect on family income levels and poverty eradication[4]. The committee of experts in the ILO 1996 General Survey of Reports relating to Convention No. 131 on minimum wage fixing explains that minimum wage may be understood to mean the minimum sum payable to a worker for work performed or services rendered within a given period, whether calculated on the basis of time or output, which may not be reduced either by individual or collective agreement, which is guaranteed by law and which may be fixed in such a way as to cover the minimum need of the worker and his/her family, in the light of national economic and social conditions.
Minimum wage is a precursor for achieving decent work and economic growth because the wages earned by the average citizen is what will help in guaranteeing a sustainable means of livelihood needed for promoting social protection.
4.0 SOCIO-ECONOMIC EFFICACY OF MINIMUM WAGE IN NIGERIA: MATTERS ARISING
The year 2019 marked a milestone for the Nigerian trade unions particularly the Nigerian Labour Congress (NLC) because it witnessed the enactment of the Minimum Wage Bill into law which effectively increased the minimum wage from N18, 000 to N30, 000. This came with bliss for the average Nigerian employee and family at large. However, while the minimum wage increased, the basic standard of living increased at a geometric progression leaving the minimum wage with no impact for a country that has already received the unenviable title of being the poverty capital of the world. Inflationary trend overtook the basic impacts the minimum wage would have had on the average Nigerian employee.
The increase in minimum wage in 2019 brought about various impacts from different standpoints. It was argued that minimum wage increase might cause inflation on the part of the employer and employee. From the employers’ perspective, the increase in minimum wage will cause an increase to firms’ wage bill, leading to cost-push inflation. For the employee, there will be an expansion in spending, also leading to demand-pull inflation[5]. While several theories have been posited on the impact of the wage increase on the economy, the reality still remains that in a homogenous labour market, wage increase over the competitive equilibrium amount will reduce request for labour and increase the quantity of labour ready for job, therefore causing increase in unemployment[6]. Nevertheless, when the market is heterogeneous, unemployment effect will depend on the elasticity of substitution over diverse workers and cross-elasticity of demand across a variety of goods[7]. Hence, the justification for the increase in minimum wage.
4.1. Rising Inflation
Nigeria’s inflation rate continues to rise while the minimum wage has not improved. This is as a result of certain underlying factors orchestrated by insecurity and paucity of foreign exchange. Food plays a critical role in the sustenance of life of every individual and when the ability to afford one square meal per day becomes a humongous task, delinquent menaces becomes prevalent. In recent times, farmers have become the main target for kidnapping by bandits which has led to rural-urban migration hence causing the sharp rise in food prices owing to substantial reduction in food production[8]. The National Bureau of Statistics (NBS) in a recent report stated that country’s inflation rose to 15.63 per cent in December 2021 compared to 15.40 per cent in November. The statistics office said prices of goods and services, measured by the Consumer Price Index, increased by 15.63 per cent in December 2021 when compared to the previous year. The NBS also reported that food inflation, which is the composite food index, rose by 17.37 per cent in December 2021, down by 2.19 per cent points when compared to 19.56 per cent in December 2020.
The recent attempt by the federal government to remove fuel subsidy has been described by relevant stakeholders as an attempt to increase the existing and untold hardships on Nigerians. The deregulation of the petroleum industry will further introduce sweeping changes in the cost of Premium Motor Spirit (PMS) from N165 to more than N300 per litre. The impact of this increase if eventually changed will be borne by the average Nigerian through increase in the cost of goods and services hence making the minimum wage without impact. However, while it has been argued that fuel subsidy is no longer fashionable in governance across the globe, feasible policies must be put in place to cushion the effect. Although the government is formulating a N5,000 grant as transport subsidy for the removal, the sustainability of this grant in the light of endemic corruption and absence of verifiable census figures is suspect.
4.2. Non-Compliance
The national minimum wage increase is yet to be implemented by some states across the federation. In the private sector, several employees particularly junior employees who are often times casual staff are not being paid the minimum wage despite not falling within the exceptions under Section 3(1) of the Minimum Wage Act. The International Labour Organization (ILO) has pointed out that the high rates of non-compliance have had negative consequences not only for workers and their families, whose rights are violated, but also for compliant employers, as it gives non-compliant enterprises an illegitimate cost advantage. This reverberates the point that a law with minimal enforcement will not promote decent work but further increase shortchanging of employees’ remuneration. The effective management and implementation of the minimum wage requires the efforts, commitment and collaboration of all stakeholders particularly the government as the impact of the minimum wage depends on its payment through enforcement mechanisms.
4.3. Corporate Governance Issues
Corporate Governance according to Sir Adrian Cadbury Code refers to the system by which companies are directed and controlled. The Organization of Economic Cooperation and Development (OECD) also views corporate governance as the rules and practices that govern the relationship between the managers and shareholders of corporations, as well as stakeholders like employees and creditors all of which contributes to growth and financial stability by underpinning market confidence and financial market integrity. Corporate governance is not a concept exclusively applicable to listed companies in the private sector of the economy. It is a concept that should also be embedded and practised effectively in the public sector. Over the years, corporate governance in the public sector in Nigeria has remained a myth rather than a reality. The seven principles of public life often called the Nolan principles enunciated by Lord Nolan in May 1995 applies to persons who serve the public in any way, including governors of higher education institutes. The principle expects that every public servant is selfless, objective, open, accountable, honest, exercises good leadership attributes, and is a person of integrity. The absence of these principles is what has resulted in the institutionalized corruption in the public sector hence having the non-implementation of the national minimum wage as the ripple and spiral effect.
Several companies in Nigeria often claim to comply with some aspects of sound corporate governance particularly financial reporting without paying attention to relevant sustainability issues which comprises of employees’ welfare and remuneration. The fact that casualization of labour is prevalent in some sectors in Nigeria is as a result of the approval and knowledge of the directors who view it as a cost-cutting strategy. This paper argues that if Director’s remuneration in line with Greenbury Report constitutes an integral aspect of corporate governance, then employees’ remuneration should also be deemed as an ethical issue which if violated should be sanctioned accordingly.
4.4. Governance Challenge
In Nigeria, citizens hold dual roles because they function as both citizens and ‘government’. They perform the basic roles of the government which includes the provision of security, education for their children, medical care, and construction of roads and water. These expenses being borne out of their personal accounts often render wage earnings insufficient. Nigeria has been described to have no overarching policy on social protection that provides details of social assistance in Nigeria. This is because the set of policies churned out and programmes undertaken in response to various contingencies such as the corona virus pandemic relief funds, Trader Moni, and N-Power have not had much impact on Nigerians across all ethnic nationalities.
4.5. Pay Architecture
An analysis of the Minimum Wage Act 2019 implies that N30, 000 be paid on a monthly basis as the base remuneration for an employee. This is flowing from Section 3(1) of the Act which states that ‘every employer shall pay national minimum wage of N30,000 per month to every worker under his employment..’ This simply implies that the standard period for remuneration is on a monthly basis which though could be varied between both parties. The justification that minimum wage should be a potent tool for social protection if calculated and divided by twenty five working days indicates that the average Nigerian employee is paid the sum of N1200 and paid N150 per hour. While this may not be an unfair permutation, its socio-economic efficacy in the light of the rising cost of living in terms of accommodation, feeding, transport, and other miscellaneous expenses for the average employee is meagre and paltry. How then can poverty be reduced? Sadly, some states are yet to implement the Minimum Wage Act into law and while some in the informal sector are being paid less for work done.
4.6. Archaic Labour Legislation
The legislation regulating minimum wage in Nigeria is grossly inadequate because while there is a codified legislation on minimum wage, the Labour Act which directly has a bearing on the payment of minimum wage through the contract of employment is archaic, fraught with non-compliance, and filled with penalties that have been overtaken by inflationary trends.
Reforms to the labour laws must be seen to address the core inadequacies of existing legislations while also looking into the future. Although there is an attempt to review the Labour Act which must be done expeditiously because for every minute the workplace remain subjected to unenforceable legislations or insignificant penalties for violation, employees become victims of more injuries; dehumanizing treatment and loss of livelihood.
4.7. Living Wage
Minimum wage is assuming a different dimension in terms of frontier expansion through living wage. As argued earlier, minimum wage was never crafted as a passport for wealth creation but to rather improve the standard of living of employees. However, with the current realities, minimum wage is no longer improving the standard of living of Nigerian employees and the need to adopt living wage has arisen. Living wage is defined as that level of income sufficient for an employee to afford the basic need of life with a small margin to address unforeseen events. The ability to cater for unforeseen or miscellaneous expenses after catering for basic needs is what underlies the potency of living wage as opposed to minimum wage. The current relevance of living wage is hinged on the significance attributed to social responsibility concepts through Environmental, Social, and Governance (ESG) tenets. It is therefore imperative for corporate leaders to create a dichotomy between living wage and other similar concepts such as minimum wage, subsistence wage, and justified wage.The need to transit from the economic and shareholders’ straightjacketed and conservative approach of profitability to other corporate social and sustainability issues is crucial. In terms of human capital development, the ‘miscellaneous issues’ which living wage will enable employees attend to could include other soft skills acquisition and investments which could be useful for the growth and profitability of the business in the long run. The crafting of living wage policies is not within the purview of the management but the board of directors.
5.0 LESSONS FROM OTHER JURISDICTIONS
The rising exodus of Nigerians to other parts of the world has been described as brain drain. The factors contributing to this sad narrative is the absence of social security in terms of conditions of work. The absence of competitive wages when compared to other climes reveals that every effort contributed to the development of the country either in the medical, legal, sports sectors to mention a few is justified and incentivized to allow for motivation and retention. In a recent report prepared by the Socio-Economic Rights and Accountability Project (SERAP), 27.4 million Nigerians earn below N100,000 per annum, which represents 48.9 percent of persons living in poverty while 10.7 per cent earned between N201,000 and N300,000 and 12.5 per cent earned more than N300,00 per annum. This report indicates that other climes in the West provide more competitive remuneration. This article has provided a comparative analysis of the structure of minimum wage in Australia, United Kingdom, and United States with cues to be borrowed from these jurisdictions.
5.1.1. Australia
Australia is ranked as one of the top ten countries in the world with the highest minimum wages as its national minimum wage applies to employees not covered by an award or registered agreement. The minimum wage is prescribed by the Fair Work Act 2009 which is reviewed yearly and is currently pegged at $20.33 per hour or $772.60 per 38 hour week (before tax).Casual employees covered by the national minimum wage also get at least a 25% casual loading. For award and agreement-free employees, the percentage scale in the Miscellaneous Award is applied to the national minimum wage.
All employees in Australia have a contract of employment depending on the category of award or agreement applicable in the sector of work. However, no employee is allowed to be paid below the minimum wage. As a general rule, employees who are below the age of 21, who suffer a form of disability or undertakes an apprenticeship position are covered under the minimum wage. However, the modern award is the widely applicable mode of fixing wages in Australia which is industry or sector specific. These categories of wages cannot be paid below the national minimum wage which makes the regulation of terms and conditions of employment of employees regulated by the government and fairer.
5.1.2. United Kingdom
The United Kingdom’s minimum wage policy is examined in this article because of Nigeria’s chequered history of colonialization and its robust minimum wage legal framework. Section 1(3) of the National Minimum Wage Act 1998 states that the national minimum wage shall be at a single hourly rate as the Secretary of State may from time to time prescribe. Section 2(1) of the National Minimum Wage Act 1998 states that the Secretary of State may by regulations make provision for determining the hourly rate at which a person is to be regarded for the purposes of this Act as remunerated by his employer in respect of his work in any pay reference period. First, there is limited evidence from the UK on how the minimum or living wage affects the family income distribution, using both pre and post-tax concepts. The National living wage for workers aged 23 and above is set to rise to GBP 9.50 an hour from April 2022.
5.1.3 United States
Section 206 of the Fair Labour Standards Act applicable in the United States states that every employer shall pay his employee a minimum of $7.25 hourly. This has remained the minimum wage since 2009. However, in year 2021, the Joe Biden administration in the United States increased the minimum wage through the Raise the Wage Act 2021. The Raise the Wage Bill if passed into law is set to increase the minimum wage from $7.25 to $15 per hour by year 2025. It was reported that the minimum wage had been static since 2009. The Raise the Wage Act apart from increasing the minimum wage to $15 per hour will automatically increase the minimum wage each year at the same rate that median wages increase and gradually eliminate the lower, subminimum wages for disabled, youth, and tipped workers, which contribute to wage theft, and exacerbate the wage dichotomy on racial basis. From 2021 to 2031, the cumulative pay of affected people would increase, on net, by $333 billion—an increased labor cost for firms considerably larger than the net effect on the budget deficit during that period. It is also believed that the level of poverty will reduce by 0.9 million. While it has been argued that the minimum wage increase will result in loss of jobs and increase in wage bill, its long run effect is that by boosting the income of low-wage workers who had jobs, a higher minimum wage would raise their families’ real income, lifting some of those families out of poverty. However, income would fall for some families because other workers would not be employed and because business owners would have to absorb at least some of the higher costs of labor. For those reasons, a minimum-wage increase would cause a net reduction in average family income.
6.0. RECOMMENDATIONS
The International Labour Organization (ILO) global best practice recommends that minimum wage systems should not be seen or used in isolation, but should be designed in a way to supplement and reinforce other social and employment policies. Several types of measures can be used to tackle income and labour market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises. Flowing from the above discourse on minimum wage in Nigeria and the need for urgent social protection policies, Nigeria must borrow cues from the examined jurisdictions above so as to build a sustainable and egalitarian society. This paper raises key recommendations below.
- Review of labour legislation: The political set up of Nigeria is such that the federal government wields humongous powers. The confederating states are not given the powers to determine a lot of social issues. The Federal Government determines several issues of which the minimum wage is part of. Several States in Nigeria are yet to implement the minimum wage of N30, 000 monthly. For instance, the California’s minimum wage law of $15 per hour overrides the federal minimum wage of $7.25 per hour. The law also enables employees paid below the minimum wage to recover the arrears. This devolution of power if adopted into our Constitution can allow for growth and social development across the states.
The Labour Act, Factories Act, Minimum Wage Act, and Employees Compensation Act must be reviewed from time to time to allow for emerging issues such as work-life balance, flexi-work schemes, and paternity leave. The laws must also be backed with stringent sanctions if flouted. For instance, while Section 7 of the Labour Act which proscribes an employer from keeping an employee for more than three months without the issuance of a contract of employment is often flouted in Nigeria, the Australian labour legislation mandates every employee to be covered under a contract of employment and this provision is strictly adhered to. Laws can only be meaningful if it is effectively backed up with enforcement and sanctions.
- Sound Corporate Governance Practices: By virtue of Principle 26 of the Nigerian Code of Corporate Governance 2018 applicable to all companies in Nigeria, a company is expected to adhere to issues of sustainability which is inclusive of welfare of employees. Beyond the figures of corporate disclosure and financial reporting aspect of corporate governance, organizations must ensure that they act as the corporate citizen that they are by acting ethically and responsibly. Issues of Environmental, Social, and Governance (ESG) issues must be adhered to because it has been proven that organizations with sound corporate governance practices perform better than those without. Companies that do not fall under the categories of minimum wage exemption and fails to pay the prescribed minimum wage must be dealt with accordingly.
- Good Governance: The government is a major stakeholder on issues pertaining to minimum wage. This is because policies and laws churned out flow from their desk and they have a duty to ensure that feasible and realistic policies that can have far-reaching effect on the average Nigerian are put in place. Before the outbreak of the coronavirus pandemic, the Nigerian economy was already contracting with rising unemployment at 33%. While corporate governance for companies cannot deny the realities of paucity of forex, insecurity, and overhead cost of production, the government must ensure that it synergizes with stakeholders to deliberate on the way forward so that umbrella policies accommodating every Nigerian is put in place.
Policies are essential in the improvement of the standard of living of citizens. Hence, the government should ensure that devaluation of Naira is reduced so that Nigeria can produce its own products which will in the long run stimulate the economy in terms of job creation and supply of foreign exchange. In terms of infrastructure, the government must ensure that social infrastructures such as housing, affordable healthcare, good road networks, and adequate security are guaranteed so that the minimum wage paid can be meaningful and commensurate to a decent lifestyle.
- Pay Architecture: The pay architecture of most jurisdictions in Europe is hourly, which emphasizes the value of time and productivity. This is a lesson which Nigeria must learn from because making payment on hourly basis will enable employers particularly the government to put in necessary infrastructure to ease working conditions. The long hours spent in traffic and inability to work as a result of erratic power supply will be much more viewed through a microscopic perspective. When every hour counts in terms of remuneration, employees will be more productive and this will make both parties in a contract of employment be more accountable towards their job description.
The view that labour is a form of cheap commodity must be eroded because every effort channeled by an employee should be justified in terms of fair remuneration. Only then can there be dignity in labour.
7.0 CONCLUSION
Minimum wage must be futuristic and evolve in line with modern trends. Nigeria still has a long way to go in terms of achieving decent work and social protection. While laws play significant roles in achieving and promoting the ideals of a progressive society, the law must be crafted with adequate enforcement and just policies so that a bright future can be guaranteed for all with the children of nobody becoming somebody someday through social protection.
Written by:
SIMILOLUWA T. DARAMOLA
This is a publication of The Employment and Labour Lawyers Association of Nigeria (ELLAN). It is only for informational purposes and is not intended to be legal advice. Enquiries about this publication and about ELLAN should be sent to ellannigeria@gmail.com
[1] Similoluwa Titilayo Daramola, LL.B (Bowen University, Iwo Osun state), B.L (Nigerian Law School, Lagos Campus), Associate, Chartered Institute of Arbitrators (ACIArb) (UK), Associate Member Institute Of Chartered Secretaries and Administrators of Nigeria (ICSAN)
[2] Section 6(6)(c) of the 1999 Constitution states that that judicial powers shall not extend to any issue or question as to whether any act of omission by any authority or person or as to whether any law or any judicial decision is in conformity with the Fundamental Objectives and Directives Principles of State Policy set out in Chapter 2
[3] International Labour Organization ‘How to Define a Minimum Wage’
https://www.ilo.org/global/topics/wages/minimum-wages/definition/lang–en/index.htm accessed 13 December 2021
[4] Raymond Campos et al, ‘The Impact of the Minimum Wage on Income and Employment in Mexico’ (2017) CEPAL Review
[5] Abdurrauf Babalola, ‘Impact of national Minimum Wage Increase on Unemployment and Inflation Rates in Nigeria: An Empirical Analysis’ (2019) 4(1) amity Journal of Economics
https://amity.edu/UserFiles/admaa/2b7c4Paper%202.pdf accessed 26 January, 2022.
[6] Ibid
[7] ibid
[8] ‘Insecurity and Agriculture
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