It has been suggested that there should be a standing policy on wages and salary review to conform with the guidelines of the International Labour Organization. One of such International Labour Organization guidelines is that salaries should be reviewed whenever the consumer price index rises. In various countries, salaries are reviewed along this International Labour organization line

ADEREMI MEDUPIN

Minimum Wage in Perspective

Minimum wages have been defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”. It is the lowest legal pay rate that a company or government agency can offer its employees; that is, the least monetary wage prescribed to be paid to workers in both the private and public sectors of an economy. In the rendition of the International Labour Organisation (ILO), the minimum wage is 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 an 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.

Fidelis Anake Atseye, Samuel Manyo  Takon and Ogar Ajom Ogar, in their 2014 piece, “Impact of National Minimum Wage on Low-Income Workers in Calabar Municipality, Nigeria”, have drawn attention to the fact that fundamentally, wage fixing according to International Labour Organization (ILO) should be to ‘give wage earners necessary social protection as regards minimum permissible level of wages’ to be based on prevailing cost of living, among other things. It has been suggested that there should be a standing policy on wages and salary review to conform with the guidelines of the International Labour Organization. One of such International Labour Organization guidelines is that salaries should be reviewed whenever the consumer price index rises. In various countries, salaries are reviewed along this International Labour Organization line. In Gabon, for example, salaries are reviewed whenever the consumer price index rises up to 2 per cent; the same is applicable in India where proper legislation is being made as regards the minimum wages of various sectors in the economy.

From basic Keynesian economics, correctly echoed by Sweet TnT Magazine in its feature: “10 pros and cons of increasing pay of workers”, we know that increasing the minimum wage can have a notable impact on consumer spending and economic growth. When workers receive higher wages, they experience an increase in disposable income, meaning they have more money available after covering essential expenses. This surplus income often translates into higher levels of consumer spending. With more money to spend, individuals are more likely to purchase goods and services, ranging from everyday necessities to luxury items. This surge in consumer spending can then lead to increased demand for products and services, prompting businesses to expand production and hire more workers to meet this demand. The cycle of increased consumer spending and subsequent economic activity can stimulate overall economic growth within local communities and at a broader national level. As businesses experience increased demand, they invest in their operations, leading to job creation and potentially contributing to a healthier job market. In essence, raising the minimum wage can create a positive feedback loop where higher wages translate into more spending, driving economic expansion and benefiting both workers and businesses alike.

Beyond the immediate material benefits, a higher minimum wage also lays the groundwork for enhanced life opportunities. With the means to invest in personal growth and development, low-income workers can expand their skill sets, pursue education, and seek better employment prospects. In the broader context, these positive changes contribute to a more stable and robust society, as families are empowered to break free from the cycle of poverty. As basic needs are met and aspirations are pursued, the trajectory of these workers’ lives transforms into one characterized by a healthier, more stable, and ultimately more prosperous existence. Furthermore, raising the minimum wage serves as a mechanism to address and mitigate the issue of income inequality within societies. The logic is that, as the income gap between low-wage workers and higher earners has widened over time, increasing the minimum wage becomes a crucial step towards relaxing this disparity, no matter how tokenistic. Boosting the wages of those at the lower end of the income spectrum, helps to elevate the earnings of individuals and families who are most vulnerable to financial hardships. This, in turn, contributes to a more equitable distribution of wealth and resources. As the minimum wage increases, it lifts the earnings of workers who often perform essential but low-paid jobs-leading to a more inclusive and just society where individuals across various income levels have improved access to better living standards, education, healthcare, and opportunities for upward mobility. By narrowing the income gap, raising the minimum wage fosters a sense of social cohesion and fairness, enabling a broader segment of the population to share in the benefits of economic growth and prosperity. Besides, when workers are compensated with higher wages, they often experience a heightened sense of value and recognition for their contributions. This recognition, in turn, fosters a greater sense of job satisfaction and overall morale. Employees who feel fairly compensated are more likely to approach their tasks with enthusiasm and dedication, knowing that their efforts are appreciated. Higher wages can also alleviate financial stress, by allowing workers to focus more on their work responsibilities rather than worrying about making ends meet. This positive shift in attitude can lead to increased productivity, better working relationships, and a more harmonious work environment.

Former US President, Franklin Delano Roosevelt (FDR), is still remembered as fervently pushing for the establishment of a national minimum wage.  As recounted by Jackson Grasz in his June 11, 2021 piece, “What did FDR mean by ‘Living Wage’?”-published on the website of the School of Public Policy, the 1936 Public Contracts Act allowed Roosevelt's administration to establish a "prevailing minimum wage" that all federal contractors had to abide by. He hoped that increasing the wages of federal contract workers would put pressure on private-sector competitors to match these wages for their employees. As the analyst faithfully captured the scenario, Roosevelt was deeply concerned with what he saw as the diminishing purchasing power of the "forgotten man," low-income farm and factory workers who were economically devastated by the Great Depression. Among other labour policy proposals like the standard forty-hour workweek, Roosevelt sought to restore this purchasing power through increased wages, which he hoped would spur additional spending and economic growth to help cover the increased cost of labour. Ultimately, he hoped to mandate that all workers would be paid "living wages" as described in his 1933 speech on the National Industrial Recovery Act. In his address to Congress in his famous speech, "A Fair Day's Pay for a Fair Day's Work," FDR had said: Today, you and I are pledged to take further steps to reduce the lag in the purchasing power of industrial workers and to strengthen and stabilize the markets for the farmers' products... Our nation so richly endowed with natural resources and with a capable and industrious population should be able to devise ways and means of insuring to all our able-bodied working men and women a fair day's pay for a fair day's work... All but the hopelessly reactionary will agree that to conserve our primary resources of manpower, government must have some control over maximum hours, minimum wages, the evil of child labour and the exploitation of unorganized labour. That was how the principle of national minimum wage became formalized. As recalled by Taiwo Aderemi of the National Institute for Legislative Studies, the ILO 1944 Philadelphia Declaration reiterates that countries should adopt a minimum living wage to protect the poor employed workers. Since then, the minimum wage has been used as a political, economic, and social tool. Its usage as a political instrument is clearly exhibited in developing countries where incumbent governments grant wage increases to unskilled workers or include wage increases as a party manifesto in order to gain the support of the electorates.

On September 7, 2022- based on data from the World Population Review, Bob Haegele shared the list of “9 Best Countries to Live on Minimum Wage” as those displayed in the Table:

S/N

Country

Gross Minimum Monthly Wage as at 2020

Proportion of income spent on basic food items

1

Australia

$1,923 

7%

2

UK

$1,523 

7.3%

3

Republic of Ireland

$1,743

7.3%

4

Netherlands

$1,655

8.3%

5

Saudi Arabia

$1,067

9%

6

Spain

$1,163

9.2%

7

Germany

$1,358,

9.3% 

8

Luxembourg

$1,989

9.5%

9

Canada

$1,383

11%

As Bob Haegele pointed out, living on minimum wage does not mean quite the same thing globally. In Uzbekistan, for example, spending on food alone is equal to more than 2.5 times the earnings of the minimum wage worker. That’s according to data from a 2020 CEOWORLD magazine report. While Uzbekistan is an extreme example, this ratio is grim in other countries too. In the Philippines, for example, spending on food equates to 75% of the minimum wage worker’s earnings. Nigeria and some other African countries come to mind, even if at some distant trailing.

According to the ILO, minimum wage systems range from very simple systems, which determine a unique rate applied to the whole country, to very complex systems that determine many different rates depending on the sector of activity, occupation, geographical region and/or enterprise size, among other alternatives. Each approach has a particular logic behind it, reflecting the concerns that policy-makers had when the policy was designed. Coming to Africa specifically, the average monthly salary is approximately 769 US dollars, as per the exchange rates in April 2023. This is about 10 times lower than in the USA and UK with average salaries of 7,900 USD and 7,795 USD respectively. Even then, the average salary in Africa varies greatly from country to country. Morocco offers a guaranteed professional minimum wage of 2,970 dirhams ($295.29) – more than double the minimum wage in Côte d'Ivoire. Following a 5% raise in September 2022, the Moroccan government is due to raise the minimum wage another 5%, to 3,111 dirhams ($309.33), in September 2023.

                    Average salary in 10 African countries

S/N

    Country

Average Salary (per month, in USD)

1

Morocco

$1,910

2

South Africa

$ 1,712 

3

Seychelles

$ 1,517

4

Kenya

$ 1,089

5

Namibia

$ 957

6

Gabon

$ 925

7

Nigeria

$ 729

8

Rwanda

$ 628

9

Zimbabwe

$ 600

10

Burundi

$ 568

This table, extracted from the Time Doctor blog, has to be taken with necessary caution- starting with the key point that it focuses on average salary, masking possible huge differences. In reality, the profile of income distribution within a country may open our eyes to the essential irrelevance of the statistic on the yardstick of minimum wage and living wage respectively, especially when the ruling foreign exchange rate is factored into the equation. This explains why panellists at a recent conference agreed that, in the African context, minimum wage levels are often very low and so there is a need for a higher level of wages, which allows people to live a sustainable life and save for future expenses such as funerals or weddings. While minimum wage allows people to survive, living wage allows people to live; this is coupled with the need for the legal enforcement of living wage in Africa derives from the fact that many employers in Africa don’t find the idea of living wage attractive, thus, a legislative instrument is needed for them to act appropriately. Inevitably, corruption constitutes a major inhibitor of the implementation of a living wage in Africa. As one of the panellists demonstrated through the invocation of the Scriptures, specifically the book of Proverbs, which says, “A poor person’s farm may produce much food but injustice sweeps it all away”; thus, corruption undermines economic growth and development, and this impedes a business’s ability to offer a living wage to its employees. 

Determining and Transiting to a Living Wage

In the explanatory note of ABC news, a living wage is a pay rate that would allow a given worker or household to afford its basic needs, such as housing, food, health care and transportation. Unlike the poverty line, which extrapolates a national baseline subsistence based on food costs, a living wage typically derives from a more complicated calculation that takes into account additional expenses as well as cost-of-living differences across regions. A living wage usually exceeds the poverty wage, since it takes a more expansive view of household expenses, including the need for savings in the event of a financial emergency; it takes into account a broader set of expenditures that they feel are the bare necessities; it includes enough that the household can be in a position to save something. The ILO recalled how there has been a renewed interest in the living wage, notably among multi-national enterprises and NGOs. In particular, increased calls for a living wage have generated considerable public controversy.

Living Wages generally have at their core a measure of living costs to provide a certain standard of living. This is the key defining feature that differentiates them from minimum wages, which are legal minimums often set to take account of the impact on employment. In effect, the Living Wage should be based on an up-to-date basket of goods and services, reflecting social consensus as to what constitutes a decent standard of living. Two key principles of the Living Wage are that it should provide a decent standard of living and be driven by changes in living costs As a practical guide on methodology, people should be brought together to reach an agreement on baskets of goods and services that provide different family types with a minimum acceptable standard of living and allow for full participation in society. Typically, focus groups are conducted with members of the public to discuss requirements in great detail, while expert opinion also ensures that nutritional standards are met. The consequent basket of goods and services, and the cost of its components, is regularly updated to reflect changing prices and social norms.

According to the Resolution Foundation, Living Wages are also based on the needs of specific family types. That is, they take into account the resources different family types need to earn to achieve the standard of living deemed to be acceptable. In some countries, like Ireland, the Living Wage is calculated assuming just one stylized family type. In the UK, both Living Wage calculations are based on weighted averages of a range of family types (singles, couples, single parents and couples with children), aiming to provide a representative mix of the different needs of various families. Melissa Zherebnenko, in a Letter to the Editor of Reflector newspaper on February 24, 2020, argued that the minimum wage should be raised so that it can be a minimum living wage. In any case, the minimum wage should be increased to an amount so people would no longer need to depend on welfare programmes. The linkage is that an individual is eligible for a welfare programme in well-ordered societies implies that they are not getting paid enough. Of course and as recalled in the Resolution Foundation Report, “Making the Living Wage”, published in July 2016, a ‘perfect’ technical method to calculate a living wage does not exist. In other words, there is no single, authoritative living wage measure. Nonetheless, based on consultations with stakeholders and analysis of the literature by the cited Foundation staff, four principles should underlie an ideal Living Wage, namely, it should: a) allow employees (and their families) to have a decent standard of living; b) be driven directly by changes in living costs; c) be transparent with a widely-supported methodology; and d) be simple.

In the June 15, 2006 edition of the New York Times, Jon Gertner posed and addressed the question: What Is a Living Wage? One of the responses to that question is that it is a common sentiment that economic fairness -- or economic justice, as living-wage advocates phrase it -- should, or must, come in a sweeping and righteous gesture from the top; that is, in the Nigerian case, from Abuja, the seat of the federal government. Coincidentally if not indeed happily, the new BAT Administration has promised to institute a living wage. Thus, the working definition of a “living wage” can be expressed as the wage rate that is high enough for the average worker to maintain a decent/adequate standard of living. In other words, a “living wage” is the minimum amount an individual or household needs to exercise the basic and fundamental rights to a standard of living – which can be measured as being above the poverty line income, 

One of the factors fuelling the demand for a living wage is a profound sense of public alarm about the gap between rich and poor. Meanwhile, there is the archaic academic argument from bourgeois economists that a rise in the minimum wage hurts employment by interfering with the flow of supply and demand. In its simplest terms, these economists reason that when government forces businesses to pay higher wages, businesses, in turn, hire fewer employees. In this vein, ideologues who are against minimum wage increases, irrespective of the context and circumstances, believe that by default, the rise of wages due to government-imposed “diktat” undermines or disturbs the so-called “free market” equilibrium and that this will result in higher involuntary unemployment than otherwise would be the case – since the market cannot clear on the basis of the minimum wage increases. Ordinarily, this is a powerful argument against the minimum wage, since it suggests that private businesses as a group, along with new entrants into the labour market (a detestable vocabulary) and low-wage employees, will be penalized by a mandatory raise. In reality, however, researches have demonstrated that a modest increase in wages does not appear to cause any significant harm to employment; quite the contrary, in some cases, a rise in the minimum wage even results in a slight increase in employment, as acknowledged in the New York Times article.

The Sun Daily of April 10, 2022, reported how, in a study on the effects of the rise of minimum wage on employment (“Minimum Wages and Employment: A case study of the fast food industry in New Jersey and Pennsylvania”, 1993), the researchers compared the employment trend in fast food restaurants between two bordering states in the US, where the minimum wage was increased on one side but not on the other. What they found was that increasing the minimum wage had no impact on employment at all, whereas the pattern of price changes as part of the rise in input (labour) costs yielded statistically insignificant findings of cost-pass through, i.e. there was no evidence that menu prices rose faster among the stores that were affected by the rise in minimum wage. In other words, raising the minimum wage, whether at the city, state or federal level, need not be toxic. Indeed, the Economic Policy Institute, which endorses wage regulations, has succeeded recently in getting hundreds of respected economists to support raising the federal minimum in that country, the USA.

In the April 4, 2022 piece, “Minimum wage should reflect living costs” Jason Loh and Rosihan Addin argued that: there are many in the job markets who have to make do with the minimum wage, which is not enough to keep up with the rising cost of living due to inflationary pressures that is set against the confluence of supply-chain issues. The minimum wage should be a fair reflection of the approximation of the living costs. Hence, the gap between the minimum wage and what is called the “living wage” should never be significant. In fact, the aim of the minimum wage should be to approximate the “living wage” as much as possible – under present conditions – until both are “symmetrical” (aligned) or synonymous.

In almost every market economy, one sore issue is the position that the business owners believe that government, especially at the local level, should not dictate to businesses. But how legitimate is such an argument? What makes sound economic sense is that, in the case of the private sector, the minimum wage should be taken as the base, which is then topped up by an additional sum to make an overall salary that realistically corresponds to the cost of living and, hence, the “living wage”. In this vein, it is not out of reason to make provisions such that businesses that implement it should be entitled to tax incentives and allowances.

Cost of living varies spatially

As Jason Loh and Rosihan Addin rightly argued, of course, when talking about the rate by which to maintain a normal standard of living, the numbers will vary based on location and level of economic development. Thus, a couple with three children living in highly urbanized Lagos or Abuja is bound to face a higher spending on average per month compared with a family of the same size in less economically-developed Ajase-Ipo in Kwara State. Conceptually and for public policy considerations, the “living wage” can and should be adaptive in nature – to accommodate the differentials and variations in the specific cost of living at the micro-level as conditioned by regions/locations and economic growth.

For practical policy purposes, the integration of the “living wage” concept into a country’s wage structure should be done through close coordination between the government and private sector. More concretely, the incorporation of “living wage” into the wage structure of a country is something that should be considered as part of the wider anti-poverty agenda of the government. On the field, Malaysia has lessons to teach: Building upon the current minimum wage increase, the government is to come up with a roadmap that seeks to revise the minimum wage in line with Section 25 of the National Wages Consultative Council Act (2011) to achieve close approximation with the “living wage”, which too is expected to be revised accordingly.

A Note on Nigeria

One of the compelling arguments used by proponents of a higher national minimum wage for Nigerian workers is the pitiable level of minimum wage in the country, not only when compared to the actual cost of living, but when examined against the minimum wage in other developing countries. The current minimum wage in Nigeria is 30,000 Nigerian Naira per month, which became operational on April 18, 2019. There is a contentious claim in the article, “Wage Policy and Industrial Relations in Nigeria: A Review of the New Minimum Wage”, penned in 2020 by C. B. Oguchi, that wage reviews in Nigeria are often not structured to address the basic needs of workers since they are not engaged and involved before their implementation. However, the study contains other instructive findings, including the following:

  1. The new minimum wage in Nigeria from the period starting from 2019 does not reflect the reality in the economy. This is because the rate of inflation, cost of living, measure of infrastructure and other necessary variables have not been considered in fixing it.
  2. This current wage is lower than that in 1981 which was N125 considering the value of the Dollar
  • Points (i) and (ii) above indicate that the wage has not been fixed in accordance with international standards e.g. the ILO standards
  1. Minimum wages in Nigeria have hardly been done by collective bargaining as should be the case.

Without prejudice to the fact that wages merely constitute a component of the wealth an individual may command if operating outside the wage-earning bracket, it is instructive to see how much some people earn in Nigeria as remuneration; thanks to Oladehinde Oladipo, who, on  May 3, 2023 penned a piece in Business Day, entitled: “Toriola, Puchercos top highest- earning Nigerian CEOs” he shared the following interesting information (for more details, see Business Day of that date); his report:

Findings showed CEOs of MTN Nigeria Communications Plc, Dangote Cement Plc, Guinness Nigeria Plc, Seplat Energy Plc, Lafarge Africa Plc, Guaranty Trust Holding Company Plc (GTCO Plc), Julius Berger Nigeria Plc, Nigerian Breweries Plc, Zenith Bank Plc, and Nestle Nigeria Plc make the shortlist of highest-earning executives of listed firms on the NGX. These firms paid their CEOs an aggregate salary of N4.7 trillion last year (2022), a 51.6 per cent increase from N3.1 trillion in 2021. Specifics: (a) Karl Toriola: the CEO of MTN Nigeria, tops the list as he earned N850 million in 2022, a 130 percent increase from N368 million in 2021; (b) Michel Puchercos: the CEO of Dangote Cement, ranks second with earnings of N736 million in 2022, a 27 percent increase from N531 million in the previous year; (c) Baker Magunda: who resigned from his role as the CEO of Guinness Nigeria Plc in October, emerged third with an annual salary of N505 million in 2022, up from N243 million; (d) Roger Brown: Roger Brown of Seplat Energy ranks fourth, with earnings of N500 million in 2022, up from N475 million in 2021; (e)  Khaled El Dokani, CEO of Lafarge Africa, ranked fifth with a salary of N452 million in 2022, a 56 percent increase from N288 million in 2021; (f) Segun Agbaje joined Guaranty Trust Bank as a pioneer staff in 1991 and rose through the ranks to become the managing director and chief executive officer in 2011 after Tayo Aderinokun, the previous CEO, passed on. As CEO, Agbaje took home N445 million in remuneration for the year 2022. This shows a 160 percent increase of N274 million from his N171 million remuneration in 2021; (g) Lars Richter, CEO of Julius Berger, ranks seventh with a salary of N417 million in 2022, a 2 percent increase compared to N408 million in 2021; (h) Hans Essaadi: Nigeria’s biggest brewer, Nigerian Breweries, paid N319 million to its highest-paid director in 2022, up from N243 million in 2021; (i) Ebenezer Onyeagwu: Next on the list of top earners is Ebenezer Onyeagwu, the managing director of Zenith Bank, one of Nigeria’s tier-one banks. He got a total annual package of N285 million in 2022, compared to N246 million in 2021 and (j) Wassim Elhusseini: a Lebanese, is the chief executive officer and the managing director at Nestlé Nigeria. Nestle Nigeria paid N266 million to its most senior executive director in 2022, compared to N206 million in 2021.

As the reader may have rightly caught the message, we now see how the notion of ‘average salary’ in the earlier Table serves as a great distortion if not indeed ridicule of the idea of both minimum wage and living wage in Nigeria as elsewhere with scant attention to the inequity of grossly skewed income distribution.

Effecting a Living Wage

By the way, October 7 is the World Day for Decent Work. It is a day to demonstrate, organize round tables, talk about the notions of decent work and vital work in a context where the number of working poor is increasing.  After all, the Universal Declaration of Human Rights (Article 23) stipulates that “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by all other means of social protection”. Guaranteeing a living wage is above all a question of respect for human rights. In this vein, there is obvious merit in the demand by the International Trade Union Confederation (ITUC-Africa), in its “Minimum Living Wages in Africa Campaign Plan”- with which we align, namely that: Minimum wages must be living wages-such a minimum living wage on which people can live, based on evidence. This is to be taken at the broad level of Africa where minimum wages are not living wages, thereby holding people in poverty and constraining development.  According to the Union umbrella body, in the first instance, governments must ratify ILO Convention 131 and ensure effective laws and wage fixing systems that ensure and uphold minimum living wages and collective bargaining; a minimum wage must be a living wage. In practical terms, minimum wages must:  (i) take into account the needs of workers and their families; (ii) apply to all workers with no exception; (iii) serve as a floor, allowing workers to bargain for higher wage levels to share productivity and profits; (iv) be set by an evidence-based process that takes into account the costs of living; (v) be regularly reviewed and updated; (vi) be as simple and easy to understand as possible; and (vii) be enforced with an effective compliance system including well-resourced labour inspectorates and dissuasive penalties/sanctions. I come in peace, please.

 

 

 

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