Introduction
I followed the conversations that ensued at the 2024 special edition of The Platform with keen interest. The Platform is a forum for public discourse on national development issues, particularly focusing on politics, governance, and the economy. More importantly, I found the thoughts and arguments of H. E Babatunde Raji Fashola on Minimum Wage fascinating because it resonates deeply with my position on the subject matter. Listening to him reecho some of my convictions on the subject matter informed my decision to put my thoughts on note and carefully articulate the same.
The first time I ever gave the subject of wages a more introspective thought was February 2020. I had read Adam Smith’s essay on the Wages of Labour from his popular book, The Wealth of Nations. It was a book I couldn’t rush and a contributing factor is the fact that the last time I stepped into an Economics class as a student was while I was in SS2. This in itself made me take my time studying that timeless piece of work.
The produce of labour constitutes the natural recompense or wages of labour.
~ John Adam
Reflecting on this statement reminded me that labour is a primary factor of production. Workers apply their effort, skill, and time to produce goods and services, and the value of what they produce should naturally be their reward. In the days of some of my ancestors, where there was no need for money or elaborate trade mechanisms, a worker would directly consume the goods they produce. My great grandfather who was a farmer who grew crops would directly consume part of the harvest and use the surplus to trade for other goods. In this case, the produce of labour (crops) directly constitutes the natural recompense (wages) of my great grandfather, the labourer (farmer). One of the primary reasons you and I apply ourselves to work is to ensure we produce value that will translate into what we earn. It is why I burn the midnight oil.
As I studied the work of Adam Smith, it became clearer that the underlying idea is that the value of what workers produce forms the basis of what they should naturally earn. The more valuable the world perceives what you do, the higher your capacity to earn.
During industrialisation, the demand for mechanical engineers surged, making it a sought after career. Today, technological advancements have shifted focus, driving our generation to learn coding and no-code tech skills to enhance our earning potential.
It is this same logic that made our parents present some profession as what is ideal to us: the fact that it is lucrative. The same can be said about footballing. What our parents saw as distractions has become a gold mine right before our eyes.
We can give thoughts to many more use cases and we will clearly come to the same conclusion: a labourer will feast on what it can produce. That is the ideal.
Natural and Market Value of Labour
Natural wages are those that allow workers to sustain themselves and their families, reflecting the basic subsistence level. Market wages, on the other hand, are influenced by supply and demand, bargaining power, and other market forces. Despite these influences, the underlying idea is that the value of what workers produce forms the basis of what they could potentially earn.
Bringing this home, the natural value of labour in Nigeria refers to the minimum level of wages necessary for workers to sustain themselves and their families. This involves several considerations, such as the cost of living and subsistence needs. The cost of living encompasses basic necessities like food, shelter, healthcare, education, and transportation, which in all sincerity varies across different regions in Nigeria. Subsistence needs generally include adequate nutrition, housing, healthcare, and education, though these needs may differ slightly due to the diverse economic and social landscape.
The market value of labour in Nigeria, on the other hand, is the actual wage workers receive, influenced by various factors such as supply and demand dynamics, economic conditions, and industry-specific characteristics. The supply and demand for labour significantly affect wage levels; high unemployment rates and a large informal sector can drive wages down, whereas sectors with scarce skilled labour may offer higher wages. Economic conditions, including economic growth, inflation rates, and currency stability, also impact the market value of labour. Saying this differently, high inflation in a country will erode the purchasing power of its citizens and lead to potential demands for higher wages.
However you choose to evaluate this subject, Nigeria is due for a new minimum wage. The cost of meeting up with subsistence needs is exponentially on the rise. So is inflation. Hence, the justification for the yearning and demands for higher earnings. The question we all need to answer is what should be the ideal? What are the benchmarks?
Factors Influencing Wage Levels
An introspective look at the natural and market value of market value makes one thing clear: it isn’t entirely straightforward. There are so many things to consider
Different industries in Nigeria exhibit varying wage levels based on productivity, profitability, and required skills. The oil and gas sector typically pays higher wages compared to agriculture or retail, reflecting the industry’s higher profitability and specialised skill requirements. Government policies, including minimum wage laws and labour regulations, play a crucial role in determining the market value of labour. Nigeria has set a national minimum wage that employers must comply with, currently at NGN 30,000 per month. Additionally, wages vary significantly between urban and rural areas, with urban centres like Lagos or Abuja offering higher wages due to higher living costs and greater demand for labour.
The practical analysis of Nigerian labour value highlights several factors. In urban areas, the cost of living is higher due to expenses related to housing, transportation, and amenities, while rural areas have lower costs but also offer lower wages and fewer job opportunities. Different sectors pay varying wages, with the oil and gas industry and banking and finance sector offering competitive wages influenced by skills and education. In contrast, agriculture typically offers lower wages due to the sector’s lower productivity and higher labour supply. The public sector often has standardised wages, which may not always reflect the cost of living adequately.
Differentiators
The crux of H. E. Babatunde Raji Fashola’s argument is the clear distinction between salaries and wages. The plot deepened with insights from H. E Charles Chukwuma Soludo on the subject matter. Wages and salaries are both forms of compensation for work, yet they differ significantly in their structure and application. Understanding these distinctions is crucial to us having robust discourse on the subject matter and achieving a meaningful and commensurate earning capacity for our workforce.
Wages typically refer to payments made on an hourly, daily, or piece-rate basis, often associated with jobs that are paid based on the amount of time worked or the quantity of output produced, such as in manufacturing, construction, or hourly service jobs.
Salaries, on the other hand, are fixed periodic payments made to employees, usually on a monthly or annual basis, regardless of the number of hours worked. They are commonly found in professional, managerial, administrative, and executive positions where job roles are more consistent and responsibilities may extend beyond specific hours.
The dynamics of wages often involve negotiation based on skill level, demand, and prevailing economic conditions, with potential for variability based on overtime, bonuses, or commissions. In contrast, salaries provide stability and predictability, often including benefits such as healthcare, retirement plans, and paid leave.
The distinction between salaries and wages aligns closely with the nature of the job and the sector of employment. Salaries are typically paid to individuals in white-collar jobs, which include positions in multinationals, corporate offices, and many Micro, Small, and Medium Enterprises (MSMEs). These roles often encompass managerial, administrative, and professional duties that are compensated with fixed periodic payments, providing financial stability and additional benefits such as healthcare and retirement plans.
Blue-collar jobs, often found in factories and certain segments of multinational companies, are usually compensated with wages. These roles are typically held by technicians and vocational workers, whose pay is based on hourly rates, piecework, or daily labour, offering less financial predictability and fewer benefits compared to salaried positions.
Despite these distinctions, both sectors face unique realities: white-collar workers enjoy greater job security and career growth opportunities, while blue-collar workers, although essential to industrial and economic activities, often contend with variable incomes and limited access to job related benefits.
Having made this clear distinction, we need to get back to our existing reality where the line between the glass floor for salaries and wages is blurred; no clear distinction on who earns what. As a matter of fact, private institutions, some State and Local Governments are unable to pay the minimum wage as salaries. It even gets more interesting when you realise that all economic indices make it more complex.
Economic Growth, Inflation, Cost of Living and Social Stability
Economic indicators such as inflation and unemployment rates also play a significant role in determining the market value of labour. Let’s take a look at what the numbers are. With a GDP of approximately $252.73 billion (nominal, 2024) $1.44 trillion (PPP, 2024), an annual growth rate of around 3.3%, unemployment rate at approximately 33.3%, with youth unemployment estimated at over 40%. What does that tell you?
It will interest you to know that about 40% of our population lives below the poverty line. The inflation rate is around 18.6%. Reality check is that persistent inflation in Nigeria affects real wages and living standards. While high unemployment rates increase the labour supply, it is potentially depressing wages and what employers can offer as salaries. It is even more captivating and breathtaking when we consider who the biggest employers of labour in Nigeria are: MSMEs. Micro, Small, and Medium Enterprises (MSMEs) are at the forefront playing a crucial role in Nigeria’s economy and employing a significant portion of the workforce.
MSMEs contribute over 50% of Nigeria’s GDP and account for well over 50% of the country’s total employment. These enterprises span various sectors including retail, agriculture, manufacturing, and services, providing opportunities for millions of Nigerians, particularly in urban and rural areas where formal employment may be limited. The workforce within MSMEs is diverse, ranging from skilled artisans and technicians to entrepreneurs and service providers. Despite facing challenges such as access to finance, infrastructure, and regulatory issues, MSMEs continue to be a vital engine of economic growth and employment generation in Nigeria.
While we clamour for a substantial increase in the earnings of the Nigerian workforce, we must also note that insisting on unrealistic numbers will drive many MSMEs into extinction, increase the rate of unemployment and further depress earnings. In a stagnant or declining economy, salaries and wages are likely to fall due to reduced demand for labour. Conversely, in a growing economy, the demand for labour increases, pushing wages up. We cannot blindly argue for the natural value at the expense of its market value. Economic growth generally leads to higher wages and as such, should be our goal as a country,
Understanding these dynamics is crucial to addressing wage-related issues and ensuring fair compensation for Nigerian workers. The natural value of labour focuses on meeting workers’ basic living needs, while the market value is shaped by a complex interplay of economic factors, industry specifics, government policies, and regional disparities.
What the Political Class Earn
The Nigerian political class, encompassing the Executive, Legislature, and Judiciary across the Federal, State, and Local Government tiers, is often characterised by substantial earnings that have sparked considerable public debate.
At the federal level, the Executive branch, which includes the President, Vice President, Ministers, and other high-ranking officials, receives a combination of official salaries, allowances, and perks. The President’s annual salary, for instance, is modestly pegged at around NGN 14 million, but this figure is dwarfed by the extensive allowances for accommodation, travel, and miscellaneous expenses, which can significantly increase overall earnings. Similarly, the Vice President and Ministers enjoy hefty allowances alongside their salaries, reflecting a compensation structure designed to ensure comfort and security, though it often raises concerns about fiscal responsibility and equity. The same can be said of the Governors and Deputy Governors of our States.
In the Legislative, the earnings are even more pronounced and contentious. Senators and members of the House of Representatives at the federal level receive substantial remuneration packages. A Nigerian Senator’s basic salary is about NGN 2 million per month, but with numerous allowances for housing, transportation, constituency projects, and more, the total monthly earnings can exceed NGN 13 million. Members of the House of Representatives also enjoy significant financial benefits, with total monthly earnings reaching upwards of NGN 8 million. At the state level, legislators earn less than their federal counterparts but still receive substantial compensation, often comparable to executive salaries in the states. This structure has led to criticism of legislative remuneration as excessively high, especially given the economic challenges facing the country.
The Judiciary, while often perceived as less publicly scrutinised in terms of earnings, also commands significant remuneration. At the federal level, judges and justices, including those on the Supreme Court and Court of Appeal, receive competitive salaries and allowances. For example, a Supreme Court Justice earns around NGN 20 million annually, inclusive of various allowances. State-level judges also receive substantial compensation, though less than their federal counterparts. Magistrates and other judicial officers at the local government level earn modestly in comparison but still benefit from structured allowances and benefits. These earnings reflect an attempt to uphold the integrity and independence of the Judiciary, though disparities within the broader public sector remuneration have fueled ongoing debates about equity and financial management in Nigeria’s governance structures.
Comparative Analysis
The salaries earned by the Nigerian workforce vary significantly across different sectors and job categories. White-collar professionals in industries such as banking, oil and gas, telecommunications, and multinational corporations often earn relatively high salaries, ranging from NGN 50,000 to several million naira per month, depending on their roles and experience levels. These employees also typically receive additional benefits such as health insurance, retirement plans, and performance bonuses. In contrast, blue-collar workers, including those in manufacturing, agriculture, and various service sectors, often earn wages that are closer to the national minimum wage. As of the most recent update, the minimum wage in Nigeria is set at NGN 30,000 per month, which is intended to provide a basic standard of living but often falls short of meeting the actual cost of living, especially in urban areas where expenses are higher. The minimum wage in Nigeria is currently about NGN 187.50 per day.
Comparatively, the remuneration of the Nigerian political class is significantly higher and has been a source of public discontent. This stark contrast between the high earnings of the political class and the relatively modest salaries and wages of the general workforce highlights significant income disparities and has fueled ongoing debates about the fairness and sustainability of such remuneration structures in a country grappling with economic challenges and widespread poverty. The considerable earnings of political officials, coupled with extensive allowances, underscore a need for more equitable and transparent compensation frameworks to address social and economic inequalities.
Challenges and Issues
Nigerians face significant challenges with the current minimum wage, salary scales across public and private institutions, and the remuneration of the political class. The minimum wage of NGN 30,000 per month is inadequate in the face of rising inflation and living costs, leaving many workers unable to meet basic needs and perpetuating poverty.
Salary scales are highly disparate, with those in lucrative industries such as oil and gas earning substantially more than their counterparts in education and agriculture, exacerbating economic inequality.
Meanwhile, political officeholders receive disproportionately high salaries and allowances, often justified by the need to attract and retain qualified individuals but fueling public outrage and perceptions of greed amidst widespread poverty and underfunded public services.
This stark disparity between the remuneration of the political class and the earnings of average Nigerians highlights deep-seated issues of fairness and social justice, undermining trust in governance and fueling social unrest.
We have a large civil service whose level of productivity isn’t too encouraging. To earn more, we need to catalyse the productivity and efficiency of our civil service so that our nation can experience economic growth. With a boom in our economy, our people can earn better. Said differently, economic growth generally leads to higher wages.
Recommendations
To address wage disparities and promote fairness in Nigeria, several policy recommendations should be considered. Firstly, the minimum wage should be regularly adjusted to keep pace with inflation and rising living costs, ensuring that workers can maintain a decent standard of living. Implementing sector-specific wage standards can help address disparities across different industries, making wage structures more equitable. Additionally, strengthening labour laws and their enforcement is crucial to ensure compliance and protect workers’ rights, particularly in the informal sector where wage violations are rampant.
Improving transparency and accountability in political remuneration is essential for restoring public trust and curbing corruption. Establishing independent bodies to review and set political salaries can ensure that remuneration is fair and justified. Mandatory public disclosure of political earnings and allowances would enhance transparency and allow for public scrutiny. Moreover, implementing strict anti-corruption measures and ensuring their rigorous enforcement would help deter unethical practices and promote integrity within the political class.
Broader socio-economic strategies are also needed to address wage disparities and foster inclusive economic growth. Investing in education and skill development is vital to enhance employability and increase wage potential for workers. Promoting economic diversification can create more high-paying jobs and reduce dependence on a few dominant industries. Encouraging private sector growth and entrepreneurship can drive economic development, creating a more dynamic and resilient economy capable of providing better opportunities and wages for all Nigerians.
Conclusion
One thing holds true: adequate wages contribute to social stability by preventing poverty and unrest. Paying workers enough to live decently is not only a matter of justice but also essential for the well-being of our nation as a whole.
We must be ready to shift grounds on what we perceive to be true, come to the table with open arms and collaborate to create a wage and remuneration system that reflects the country’s economic realities and social aspirations.