UNIVERSITY OF IBADAN

FACULTY OF THE SOCIAL SCIENCES

DEPARTMENT OF SOCIOLOGY

SOC 746: Social Planning and Administration

A Term Paper on Minimum Wage Policy

Prepared by: GROUP 8

Immaculata Eleje ENYA 233434
Mosunmola Opeyemi ADETOYE 195600
Abidoye Amos OLANIYAN 234062
Faith Ayooluwa OYINLOYE 233435

Lecturers - in - charge
Prof. Okafor
Dr. Salami
Dr. Ademuson
Abstract:
This term paper examines the minimum wage policy, focusing on its background, significance,
and purpose. The paper explores the historical context of minimum wage policy and highlighting
its evolution, major milestones, and impact on workers and the economy. It provides an
overview of the current minimum wage policy in Nigeria, including the statutory body’s
involved and key features of the policy. The economic implications of minimum wage policy are
discussed, including its effects on businesses, employment, inflation, cost of living, income
inequality, and economic growth. The social and labor market implications of the policy are also
examined, considering its impact on workers' rights, labor market dynamics, and vulnerable
workers. Furthermore, the paper compares Nigeria's minimum wage policy with international
models, drawing lessons and best practices for improvement. It presents stakeholders'
perspectives on minimum wage policy, including government, employers, trade unions, and civil
society. The successes and shortcomings of minimum wage policy in Nigeria are analyzed, along
with theoretical perspectives that provide insights into its implications. Finally, the paper
concludes with emphasizing on the importance of an effective minimum wage policy in Nigeria.
Introduction
Minimum wage policy refers to the legally mandated minimum level of compensation that
employers must pay to workers for their labor. It sets a floor for wages, aiming to protect
workers from exploitative labor practices, reduce income inequality, and promote social justice.
The concept of minimum wage policy has its roots in efforts to address labor market imbalances
and protect workers' rights (Smith, 2020). Throughout history, minimum wage policies have
evolved worldwide, responding to changing labor dynamics and societal needs. They have been
influenced by economic factors, social movements, and the quest for fair income distribution.
Understanding the historical development of minimum wage policies can provide insights into
the context and evolution of such policies in Nigeria (Davidson, 2018).

The minimum wage policy is a crucial aspect of labor regulations and social protection systems
in many countries, including Nigeria. It serves as a mechanism to ensure that workers receive
fair remuneration for their labor, providing a safety net against exploitation and poverty and
wage determination involves an evaluation of the contributions of employees in order to
distribute fairly direct and indirect, monetary and non-monetary rewards within an organization’s
ability, pay and legal regulations. The minimum wage legislation is a very important criterion in
the payment of wages. The fixing of minimum wage prevents the exploitation of weak, ill-
informed or isolated groups of individuals. Minimum wage affords such people a more
comprehensive protection than is available through existing voluntary bargaining machinery.
Minimum wage is a universal practice. It is practiced in countries across the globe. The ILO
(2008) affirms that presently, there is legislation or binding collective bargaining regarding
minimum wage in more than 90% of countries of the world.

One argument is that the fixing of minimum wage affords workers a reasonable income to meet
their basic needs and raise their standards of living. Another argument is that by the introduction
of minimum wage employers are not only hindered from using unreasonably cheap labour; they
are encouraged to use human resources more efficiently and therefore, raise productivity.
However the success of minimum wage in its intended goal will depend apart from the criterion
used, on the level at which it is fixed. The International Labour Organization ILO (2009)
observes that ultimately, the impact and usefulness of a minimum wage policy depends on
whether minimum wages are paid. This in turn depends on the effectiveness of the enforcement
mechanisms. Penalties for violators, adequate compensation for workers whose rights have been
violated and suitable resourcing of the enforcement authority are all crucial factors. The active
involvement of social partners in both the design and operation of minimum wage enforcement
regimes is essential to enhance its impact.

Minimum wage policy is usually used as a principal component of welfare boosting and poverty
reduction macroeconomic policy frame work in Nigeria and minimum wage legislation is a
major income policy readily employed in this regard. Although, it has both negative and positive
effects on the overall economy, policy makers, especially the politicians have used the fixing of
minimum wage more often for political rather than socio-economic reasons. Minimum wage
legislations in the country have been preceded by high inflation rates that actually erode
purchasing power and bring reduction in welfare. As a result, minimum wage legislation, which
normally leads to a rise in nominal wage, is justified as a means of adjusting wages and salaries
to match the rise in cost of living. However, Ojo (1998) and Owoye (1994) opine that wage
increases are always followed by threats of reduction in government and private workforce, and
in some cases, such threats have resulted in massive lay-offs in the civil service. Besides,
minimum wage increases in Nigeria do not match up with the rate of increases in prices which
resultantly leads to agitations from labour unions for persistent wages and salaries increase.

The Concept of Minimum Wage

Minimum wage can simply be defined as the smallest hourly wage that an employee may be paid
as mandated by Federal Law. Inflation and other factors necessitate periodic adjustments of the
actual number. The Cain Labour Standard Act of 1938 in the USA defines minimum wage as the
minimum hourly rate of compensation for labour as established by federal statute and refined by
employers engaged in businesses that affect interstate commerce. It may also be defined as the
rate of pay fixed either by a collective bargaining agreement or by governmental enactment as
the lowest wage payable to specified categories of employees. 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. Earlier in
1967, the ILO meeting of experts on minimum wage fixing and related problems had explained
that the concept of the minimum wage contains three basic ideas.

The first is that the minimum wage is the wage considered sufficient to satisfy the vital
necessities of food, clothing, housing, education and recreation of the workers, taking into
account the economic and cultural development of each country. The second is that minimum
wage represents the lowest level of remuneration permitted, in law or fact, whatever the method
of remuneration or the qualification of the worker. Third is that the minimum wage is the wage
which each country has the force of law to uphold and which is enforceable under threat of penal
or other appropriate sanctions. It further notes that minimum wage fixed by collective
agreements made binding by public authorities is included in the above explanation. The
establishment of a minimum wage system is a means of ensuring that workers (and in some
cases, their families) will receive a basic minimum wage which will enable them to meet their
needs; hence the frequent use of the term ‘minimum living wage’. Efforts to implement such a
concept imply an attitude or a policy which aims at improving the material situation of workers
and guaranteeing them a basic minimum standard of living which is compatible with human
dignity.

Minimum wages constitute a level which may not be undercut, and whose application is
guaranteed by law. It excludes certain bonuses or benefits and is payable, in cash or in kind,
directly or indirectly by the employer to the worker for work performed by the latter. In addition,
it often does not apply to certain types of workers (e.g. those working less than a certain number
of hours) or to certain activities.

Minimum wage is an important in addressing the right to human dignity at the workplace. It is
instructive to note however that although the practice of National Minimum Wage is not new the
duration, details and nature vary from country to country. Commenting on the origin of the
practice of minimum wage, the Microsoft Encarta observes that the first minimum wage law
enacted by government was by New Zealand in 1894. A subsequent law enacted by Victoria
State, Australia in 1896 established wage boards on which workers and employers were
represented in equal numbers with the power to fix minimum wages enforceable on the
employer. This innovative law served as the model for the British Trade Boards Act of 1909. In
the United States, Massachusetts enacted the earliest minimum wage law in 1922, and eight other
states followed suit. Dolle (1999) and Metcalf (2001) observe that the United States and France
are among the countries with the longest practice in applying a single national minimum wage.
In contrast, in the United Kingdom, a national minimum wage was only introduced in April
1999. Developing countries too have regularly increased their minimum wages to provide social
protection to vulnerable and non-organized categories of workers. Many countries like
Argentina, Brazil, China and South Africa have been among the main drivers of this upward
trend.

Objectives of Minimum Wage Setting

The objective of minimum wage fixing, as set out in ILO Minimum Wage Fixing Convention,
1970 (No.131) and its accompanying Recommendation No. 135, is to give wage-earners the
necessary social protection in terms of minimum permissible levels of wages. This objective was
already implicitly or explicitly contained in previous ILO Convention No.26 and
Recommendation No. 30 (applicable to trades) and Convention No. 99 and Recommendation
No. 89 (applicable to agriculture), which stipulated that the minimum wage should not be fixed
at a lower rate than one which would ensure the subsistence of the worker and his/her family.
Minimum wages along with other measures of economic and social policy aim at reducing
poverty and meeting basic needs. Minimum wage fixing alone cannot succeed without the
satisfaction of the minimum needs of all workers.

The objective of minimum wage fixing, as set out in ILO Minimum Wage Fixing Convention,
1970 (No.131) and its accompanying Recommendation No.135, is to give wage earners the
necessary social protection in terms of minimum permissible levels of wages. This objective was
already implicitly or explicitly contained in previous ILO Convention No.26 and
Recommendation No. 30 (applicable to trades) and Convention No. 99 and Recommendation
No. 89 (applicable to agriculture), which stipulated that the minimum wage should not be fixed
at a lower rate than one which would ensure the subsistence of the worker and his/her family.
ILO (1988) observes that minimum wage fixing is often associated with one or more of the
following four purposes. First is bringing the lowest wages up to the general level of wages paid
for similar work. Second is exerting upward pressure to the general level of wages as a whole.
Third is eliminating unfair competition fourth is serving as a policy tool aimed at promoting
rapid growth and equitable distribution of the national income.

Criteria for Minimum Wage Determination

A number of criteria for fixing or determining wages and salaries have been identified in the
literature. Among these are job evaluation (adjudged the most valuable way of fixing wages),
government order (especially with regard to minimum wage), ability to pay (on the part of the
employers), cost of living, collective bargaining and the effort of labour unions (which is
dependent on the negotiation skills of the parties, the personality and the societal culture of the
negotiators and the ideology and culture of the organization); the labour market situation (the
interaction of supply and demand of labour in a relatively competitive labour market; the going
rate (wages and salaries paid for comparable work by other institutions in the labour work or in
the area or industry); and productivity (which has to do with measures of output per person).

Modern sector wages and salaries are determined and regulated by administrative decisions of
government, Wage Commissions, and Prices and Income Policies. Also, the traditional (mainly
rural and informal) intermediate sector wages are influenced to a great extent by market forces
and to a lesser extent by wage levels in government establishments. In 1977, the Federal
Government had to establish a Productivity, Income and Wages Analysis Agency (to collect and
analyze statistics on wages, income and price changes in both the public and private sectors) as a
permanent institution to substitute for the institutionalized culture of ad hoc wage commissions
to resolve wage and salary problems. Nevertheless, wage review commissions/ committees still
continue to feature in government wage determination process. The ILO Recommendation No.
135 identifies certain criteria, or factors, to be taken into account in determining the level of
minimum wages.

The criteria include:

i. The needs of workers and their families;

ii. The general level of wages in the country;
iii. The cost of living and changes therein;
iv. Social security benefits;
v. Levels of productivity and the level of employment.
 vi. The relative living standards of other social groups; and economic factors, including the
requirements of economic development,

This criterion also includes the capacity to pay. The basic needs of workers and their families has
to with measuring poverty levels and the basic needs of households (especially of wage earner
households) using data on average expenditure by low income households on various household
goods and services. The statistics can be compiled from household income and expenditure
surveys. However in Nigeria, the recommended data is mostly not available. Next is the general
level of wages in the country. The idea of comparable wages and incomes is an important, and
sometimes the dominant, consideration in decision-making. Existing pattern of wages and
incomes must be established before judgments can be made on the appropriate level of the
minimum wage, taking into account other criteria such as ability to pay and the needs of workers.

The pay of the Nigerian worker is one of the lowest in the world and it does not improve even in
spite of changing market conditions. Workers in the public sector are particularly worse off.
After a minimum wage has been fixed, it needs to be adjusted periodically. This is often done by
reference to average wages, with a view to maintaining a particular ratio between the minimum
wage and general wage levels. It is also necessary to know the number of workers earning at or
near the minimum wage level, in order to assess the impact of a minimum wage increase on the
wage bill. Again lack of adequate and reliable statistics is a major challenge in this area. Also
there is the cost of living factor.

Measures of changes in the cost of living involve regular reports of the average prices of a
selected range of household goods and services, and these prices may be useful inputs to the
determination of minimum wages. Changes in price levels (as opposed to the absolute level of
prices) are normally measured by a consumer price index. This may not only lead to a change in
the weighting system for a consumer price index for low-income households but also lead to a
re-assessment of the extent to which basic needs are being satisfied. The cost of living is hardly
factored in minimum wage in Nigeria in that the huge cost of living requirements cities like
Lagos is not the same as in Kebbi, Ebonyi, Edo and Ondo States and minimum wage is usually
fixed at the same level for all states. Similarly pay in any progressive and egalitarian society
should be commensurate to productivity and cost of living.
This is even more so in a developing nation struggling to put in place certain regimes and
improve its human development and living standards. Productivity is a criterion hardly ever used
in fixing minimum wage in Nigeria. Another criterion is the relative living standards of other
social groups which can be measured using average income and income distributions of different
social groups; average expenditure, in total and on different groups of household goods and
services, of different social groups; other measures of living standards (average number of rooms
in dwelling, proportion of households renting accommodation, average number of household
members per room, type of material of , proportion of household members with post-primary
education, and so on). Added to these are economic factors.

This includes the requirements of economic development, employers’ capacity to pay, levels of
productivity and the level of employment. Measures of economic development include: changes
in gross domestic product (GDP) per capita at constant prices; while social measures of
economic development might include: changes in the proportion of children attending school;
changes in the literacy rate; changes in the number of schools/hospitals per capital; changes in
the accessibility of selected community facilities (piped water, markets, schools, hospitals, postal
services, fire services, police services). In the area of economic activity changes in the
unemployment rate; changes in the percentage of persons employed in agriculture,
manufacturing and services sectors might be considered.

Significance of minimum wage policy in Nigeria

The significance of the minimum wage policy in Nigeria cannot be overstated. Nigeria faces
significant income inequality, with a large proportion of the population living in poverty (World
Bank, 2021). The minimum wage policy plays a vital role in addressing these challenges by
ensuring that workers receive adequate compensation for their labor.

Beyond its economic implications, the minimum wage policy holds social significance. It
promotes social justice, safeguarding workers' rights and dignity in the workplace. By setting a
minimum standard of remuneration, the policy helps protect vulnerable workers and contributes
to reducing social disparities (Adepoju, 2017).

In Nigeria issues of wage negotiation and increment date back to the period of colonial rule and
are associated with civil service reform programmes. In spite of the stress of official labour
policy on collective bargaining, actual dealings of the government as regards labour disregarded
this policy. The government has always set up ad hoc commissions to consider bonuses or wage
revisions during periods of labour discontent. Collective Bargaining never played any significant
role in wage fixing and labour relations especially in the public sector in Nigeria. In fact
government as the largest employer of organized labour has affected the practice of collective
bargaining negatively through its employment practices and actions. Though the Whitley
Councils and later the Public Service Negotiating Councils were never allowed to negotiate
wages and salaries in the civil service but were restricted to discussion labour problems, wages
and salaries were based on the recommendations of Wage Review Commissions.

Wage Review Commissions in Nigeria, 1934 – 2010

 Hunts Commission 1934

 Harragin Commission 1954
 Phillipson-Adebo Commission 1948
 Gorsuch Commission 1954
 Mbanefo Commission 1959
 Morgan Commission 1963
 Eldwood Commission 1966
 Adebo Commission 1971
 Udoji Commission 1972
 Dotun Phillips Panel 1985
 Ayida Review Panel 1994
 Philip Asiodu Committee 1998/1999
 Ernest Shonekan Committee 2000
 Justice Alfa Belgore Committee 2009/2010

Another way by which minimum wage is set in Nigeria is through Government Decrees (usually
during military regimes) and Acts of Legislation. For instance President Ibrahim Babangida
approved a 45% wage increase for Federal Civil Servants in 1992; in1998 the then Head of state
General Abdusalam Abubakar came up with =N= 5500 and President Obasanjo in 1999 fixed
minimum wage at N7,500 wages. Government often promulgates Decrees and uses Acts of
legislation to set the minimum wage. Between 1973 and 2003 as presented in Table 2 there were
seven of such Acts and Decrees.

Minimum Wage Acts and Decrees in Nigeria

 Wage Board and Industrial Council Act 19774 (Cap. 466) (No. 1 of 1973, L.N. 55 of
1974)
 National Minimum Wage Act 1981 (No. 6 of 1981)
 National Minimum Wage Decree No. 43 1988
 National Salaries Incomes and Wages Commission Decree 1993 (No. 99 of 1993
 National salaries, Incomes and wages commission (Amendment) Decree (No. 17 of
1999)
 National Minimum wage (Amendment) Act, 2000 (No. 1)
 National Minimum wage (Amendment) Act, 2003

Current Minimum Wage Policy in Nigeria

The minimum wage can be referred to as a legally binding order by the government to employers
on the least amount to pay as wages to employees. Since 1981, there have been four changes to
the Nigerian minimum wage. The most recent change in the minimum wage came up in early
2019, with the Federal Government of Nigeria approving a 66.67 per cent increase to N30,000
from the N18,000 minimum wage set in 2011. The National Labour Congress (NLC) has been
the major advocate for increase in the minimum wage in Nigeria, citing the need to boost the
living standard of the people.

Empirical literature shows that minimum wage has varying macroeconomic effects ranging from
wage effects (Wong, 2019); employment effects (Baducco and Janiak, 2018); distributional
effects (Neumark, 2006); welfare effects (Gorostiaga and Rubio-Ramirez, 2007); and price
effects (Folawewo, 2007) among others. On the one hand, an increase in the minimum wage is
expected to enhance the standard of living of the people; also positively affect the productivity of
employees, and increase consumption spending and aggregate demand in an economy (Cuong,
2011). On the other hand, evidence subsists that an increase in the minimum wage might not
itself deduce any welfare increase to workers, especially when firms attempt to hedge cost by
reducing non-cash components (labour employment) or even respond by increasing the price of
their goods and services. The aggregate effect of the behaviour of the firms could inadvertently
lead to an increase in both unemployment and inflation rate (Antonova, 2018).

The minimum wage trend and inflation dynamics in Nigeria

Three minimum wage changes have been implemented in Nigeria between 1981 and 2018, the
provision of the National Minimum Wage Act of 1981 obligated employers to pay N125 as the
lowest amount to employees. In 2000, the Act was amended and the minimum wage was
increased to N5500, and by 2011, it was adjusted to N18,000. These changes indicate that the
nominal minimum wage increased by 4300 per cent in 2000 and by 227 per cent in 2011.

However, while the minimum wage in Nigeria appreciated by 227 per cent from 2011 to 2018;
there was a decline in the real minimum wage of Nigerians due to the effect of inflation. Inflation
is measured by changes in the consumer price index (CPI) and it is used to determine the average
change over time in the prices of goods and services consumed by individuals. The minimum
wage has featured prominently among the policy instruments applied to improve the well-being
of low-skilled workers, however, policy discussions often raise concerns about its impact on
employment, prices, and most especially on non-wage job attributes (Clemens, Kahn and Meer,
2018).

Evidence subsists that the minimum wage may not itself translate to any welfare increase to
workers, especially when firms attempt to hedge cost by reducing non-cash components.
According to Mas and Pallais (2017), such non-wage job attributes, [i.e.?] ‘non-cash component
of wages’, serve crucial value to workers in the employment arrangement. The study by Clemens
et al. (2018) found that a $1 minimum wage increase for those in low-paying occupations was
associated with a 4% decline in employer willingness to sponsor a health insurance scheme,
making the effect of the minimum wage increase to spill over into the macro-economy.

In the same vein, theoretical strands espouse that minimum wage policy translates moderately to
favour higher earners, and reduces low-skilled participation, hence, misaligning the policy
advocacy that suggests minimum wage increase as potentially poverty-reducing and welfare
enhancing (Stigler, 1946; Mckenzie, 1980; Lee and Saez, 2012). The foregoing theoretical and
empirical assertion implies multi-dimensional effects of minimum wage adjustment that
transcends a literal income effect.

Effects of Raising the Minimum Wage

Evidence abounds in literature on the macroeconomic effects of raising the minimum wage,
especially as it relates to the effect on employment, wage distribution, and output. According to
common consensus, which was affirmed by Card and Krueger (1994) and Bauducco and Janiak
(2018), employment responds marginally to a moderate rise in the minimum wage, while a very
large minimum wage increase leads to negative spillovers on employment. Notably, a minimum
wage increase, though, compresses wage distribution but generates more spillovers for higher
earners (Neumark and Wascher, 2008).

Challenges to Effective Minimum Wage Implementation in Nigeria

There are several challenges to the management and implementation of the National Minimum
Wage in Nigeria. One is the Labour Market Situation. Ojo (1998) notes that in a relatively
competitive labour market, the interplay of supply and demand is the most important determinant
of compensation. Arising from certain imperfections in the market caused by institutional,
administrative, political and socio-cultural factors, the role of the price mechanism is minimal
especially in a developing country like Nigeria nevertheless the interplay of supply and demand
still exerts some influence.

Consequently periods of unemployment do not generally favour high pays, as employers have
the opportunity to attract high caliber employees without necessarily offering the legal minimum
wage which may be considered excessive. Again periods of scarcity of skills in the labor market
will expectedly witness high movements of wages, provided market forces are allowed to
sufficiently allocate wages and employment. The labour market situation in Nigeria is such that
there are too many people chasing too few jobs. The level of unemployment and poverty in
Nigeria today is unprecedented. There are huge and unprecedented job losses occasioned by the
global economic meltdown; the relocation of companies to other regions because of the security
crises and the hydra headed power sector problems, the prevalent multiple taxation, security
challenges, corruption, terrible conditions of basic infrastructure , the unacceptable high cost of
doing business in Nigeria; reforms in the banking , petroleum, public sectors etc. worsened by
the irrational and inhuman responses to these reforms by some employers of labour. In view of
such circumstances the capacity of the Nigerian worker to demand the new minimum wage is
greatly impaired. Fapohunda (2004), notes that, on a national basis, open unemployment was
over 10%. Most of the unemployment is concentrated in the urban areas.

The Federal Office of Statistics (2011) reports that as at September 2010, urban unemployment
was over 20% in some states. The unemployment is not only of unskilled workers; it includes
unemployment of highly skilled people including graduates of universities and of other
institutions of higher learning. Fajana (1983) shows that there was strong and negative
relationship between employment and wage changes in the Nigerian industrial sector.
Specifically, the result showed that a 100 percent increase in average wages will lead to 23% fall
in employment. Wages were found to have had some influence in the Nigeria industrial
employment growth. It was concluded that increase in federal minimum wage causes
unemployment. Next is the Legal Framework. Payment of minimum wage is often not
enforceable. Government must direct private sector employers to negotiate with their workers,
with a view of implementing minimum wages. The enforcement capacity of the federal
government agencies is a challenge. The Federal Government does not seem to have sufficient
qualified personnel for the purpose of ensuring that the provisions of the labour laws including
the National Minimum Wage are effectively and adequately observed by employers of labour
including the various state and local governments.

The International Labour Organisation (2008) observes that unfortunately in many countries,
labour inspection services are understaffed and penalties for non-compliance with minimum
wage regulations are too weak. A close examination of the number of officers working in the
Federal Ministry of Labour and Productivity vis-à-vis the level of industrial activities tend to
support this line of thinking. As a result, minimum wages too often remain a “paper tiger” rather
than an effective policy. As observed by Squire and Suthiwart-Narueput (1997) compliance is a
function of the probability of firms being visited by labour inspection services, and of the level
of penalties in the case of non-compliance. There is therefore no gainsaying that supervision by
the Ministry is very important so as to ensure that the Minimum Wage is actually implemented in
practice.
Another challenge is lack of awareness. Many workers and indeed Nigerians seem ignorant of
the minimum wage and the provisions of the Principal Act including the 2010 amendments they
are therefore unable to demand for them. Adequate enlightenment campaign by government, the
Organized Labour and other social partners and stakeholders to sensitize the Nigerian public and
workers become necessary. Similarly there is the unfriendly posture of some state governors on
minimum wage. The extent to which states comply with the minimum wage differs from one to
the other. This might be due, to a very large extent, to the financial strength (of individual states),
which has been recognized since 1991 as a critical factor in public sector employers’ compliance
with any wage directive from the Federal Government in Nigeria, the Federal Government
appears to play some sort of overriding role on labour matters.

Some states are often unwilling to pay the new minimum wages. For instance in 2000 many state
governments refused to pay the Federal government recommended minimum wage leading to
many industrial actions. The International Committee of the Fourth International (ICFI) on the
strikes by labour and actions of State Governors in 2000 reports that the country was gripped by
a strike wave over the level at which a new minimum wage should be set. The action began with
a strike by civil servants in Lagos state, and quickly spread throughout the country. Forty-seven
thousand public sector workers were on strike for two weeks in Lagos, with refuse dumps not
cleared, water taps running dry and health services collapsing. Civil servants in at least 12 states
also went on indefinite strikes. The story was not different in 2010 when the new minimum wage
was recommended.

This is very disturbing especially because in 2010 especially the state governments were
consulted and represented in the Tripartite Committee on National Minimum Wage Committee.
It is instructive to note here that any industrial actions further heat up the already overheated
polity. In addition, there are those organisations with a culture of unfair labour practices and
miserable wages. Sadly, some organisations have a culture of unfair labour practices and it
would seem that they try to exploit every available opportunity to oppress, repress and enslave
their workers. Such organisations do everything possible to evade the minimum wage. Some
convert their employees to “contract or casual staff” such that none of these employers would
have up to 50 employees since the minimum wage applies to companies with at least 50
employees. Moreover, in general, Nigeria does not have reliable or accurate statistics. There is
no programme of establishment surveys covering industrial production and this is a very
important criterion in fixing minimum wages.

Challenges of Non-Unionized Workers, Casualization and Contract Staff

Non-unionised workers are the greatest victims of unfair labour practices including the denial of
their rights as contained in the extant labour laws and the ILO conventions. The respect for
workers’ right and dignity are more violated for non-unionised workers, casual workers and
contract staff. This is quite understandable and that is why the constitution, extant labour laws,
African Charter on Human and People Rights (Ratification and Enforcement Act) 1990 as well
as various ILO conventions seeks to guarantee the right of workers to join a trade union for their
protection. Economic factors also constitute challenge to employers’ capacity to pay a specified
minimum wage. A quantitative assessment of this capacity may be difficult but would include
measuring the level of wage payments relative to: other payments, in particular other labour
costs (such as non-wage costs related to the employment of labour) payments to other factors of
production (profits, return on investment, etc.).

Another challenge is that smaller and unregistered establishments, and especially those in the
informal sector, tend to be excluded from minimum wage. Such establishments are more likely
to employ casual workers and family members, and are less likely to be affected by minimum
wage determinations. Casual workers, workers employed in small establishments or workers
employed for less than the normal duration of work, are who more likely to be employed in
household enterprises or in the informal sector, are precisely the type of workers whom might be
affected by the absence of effective wage regulations(by collective agreement or otherwise).
These workers should be protected from the risk of being paid unduly low wages and the
minimum wage would act for them as a safety net. Equally important is the assessment of their
employer’s capacity to pay a given minimum wage and the impact such a wage could have on
the employment level and workers’ conditions of employment.

Theoretical Perspective on Minimum Wage Policy

There are several theoretical perspectives that provide insights into minimum wage policy and its
implications. Here are three prominent theoretical perspectives:

Efficiency Wage Theory

Efficiency wage theory suggests that minimum wage policy can be beneficial by improving
worker productivity and reducing turnover. According to this theory, when wages are set above
the market-clearing level, it can motivate workers to work harder, enhance their skills, and
remain loyal to their employers (Azam & Gurgand, 2006). Research by Azam and Gurgand
(2006) provides empirical evidence supporting the efficiency wage theory in the context of
minimum wage policy. They conducted a study in which they analyzed the impact of minimum
wage increases on productivity in the French retail sector. The results of their study indicated
that higher minimum wages led to increased worker productivity, suggesting that higher wages
incentivized workers to exert greater effort and improve their job performance. Similarly, a study
by Brown et al. (2014) examined the relationship between minimum wages and productivity in
the United States. The findings of their research indicated that higher minimum wages were
associated with increased productivity, particularly in industries with a higher proportion of low-
wage workers.

However, it is important to note that the relationship between minimum wage policy and worker
productivity is not universally agreed upon. Critics argue that the efficiency wage considerations
may be relevant in specific contexts, but the theory does not fully account for potential negative
effects such as job losses and reduced employment opportunities (Neumark & Wascher, 2008).

Poverty Reduction Theory

Poverty reduction theory emphasizes the role of minimum wage policy in reducing poverty and
income inequality. Proponents argue that by providing a basic income floor, minimum wage
laws can lift workers and their families out of poverty (Smith, 2018). Setting a higher minimum
wage can have a direct impact on the earnings of low-wage workers, improving their income
levels and reducing their vulnerability to poverty (Adeyemi et al., 2022). Empirical evidence
supports the positive relationship between minimum wage policy and poverty reduction. A study
by Adeyemi et al. (2022) examined the impact of minimum wage on poverty reduction in
Nigeria, specifically focusing on Ogun State. The findings of their research indicated that the
implementation of minimum wage policies had a significant effect in reducing poverty levels
among low-wage workers in the state.

Furthermore, minimum wage policy can contribute to income redistribution and narrowing the
income gap between different segments of the population. In a study conducted by Parker
(2019), which reviewed the evidence on minimum wage policy in Sub-Saharan Africa, it was
found that minimum wage increases had a positive effect on reducing income inequality,
particularly for workers at the lower end of the wage distribution. These findings highlight the
potential of minimum wage policy in mitigating poverty and addressing income disparities. By
ensuring that workers receive a fair and decent wage, minimum wage laws play a crucial role in
improving the well-being and economic security of low-wage workers and their families.

The Successes and Shortcomings of Minimum Wage Policy in Nigeria

The successes and shortcomings of minimum wage policy in Nigeria can be analyzed by
examining its impact on various economic and social indicators. Here are some key points to
consider:
Successes of Minimum Wage Policy in Nigeria:
1. Improved Income Levels: The implementation of minimum wage policy in Nigeria has
contributed to raising the income levels of low-wage workers, providing them with a
basic standard of living and reducing income disparities.
2. Poverty Reduction: Minimum wage policy has played a role in reducing poverty rates
among low-wage workers and their families. By establishing a wage floor, it helps lift
workers above the poverty line and improves their economic well-being.
3. Increased Consumer Demand: Higher minimum wages can boost consumer spending and
stimulate economic growth by providing low-wage workers with more purchasing power,
which can positively impact businesses, especially in sectors that rely heavily on
domestic consumption.
4. Enhanced Social Protection: Minimum wage policy serves as a mechanism for social
protection, ensuring that workers receive a fair wage for their labor and are protected
against exploitative labor practices.

Shortcomings of Minimum Wage Policy in Nigeria:

1. Compliance and Enforcement Challenges: One of the major challenges with minimum
wage policy in Nigeria is the lack of effective enforcement mechanisms, leading to
widespread non-compliance by employers, particularly in the informal sector. This
undermines the intended benefits of the policy for workers.
 2. Inflationary Pressure: Setting minimum wages too high relative to productivity levels can
result in inflationary pressures, as businesses may pass on the increased labor costs to
consumers through higher prices. This can have negative implications for the cost of
living and overall macroeconomic stability.
3. Adverse Impact on Employment: Critics argue that higher minimum wages can lead to
adverse effects on employment, particularly for low-skilled workers. Businesses may
respond to increased labor costs by reducing their workforce or limiting new hiring,
which can result in job losses and hinder employment opportunities.
4. Limited Coverage and Exclusion: Minimum wage policy may not cover all workers,
especially those in the informal sector and vulnerable groups, such as domestic workers
and agricultural laborers. This exclusion can perpetuate income inequalities and leave
certain segments of the workforce without adequate protection.
5. Regional Disparities: Nigeria's minimum wage policy does not account for regional
variations in living costs and economic conditions. As a result, the impact of the policy
may vary across different states and regions, potentially exacerbating regional disparities.

Suggestions for Effective Management of Minimum Wage

To effectively implement and manage national minimum wage in Nigeria this paper has several
suggestions. The issue of legal challenges must be addressed. Without adequate legal backing
minimum wage does not only fail to achieve its aim it ends up as mere recommendations which
is subject to the acceptance or otherwise of the parties. The law should be simple so that it would
be easily understood by all stakeholders (i.e. employers, employees, labour unions, employers
union and the enforcement institutions) as well as include procedures that will help workers and
their union officials to effectively exercise their rights under the minimum wage legislation,
including the right to recover amounts by which they may have been underpaid; and adequate
protection of workers against victimization for doing so.

There must also be effective monitoring of compliance. The various relevant agencies charged
with responsibilities of monitoring compliance with the minimum wage must be adequately
staffed and provided with facilities necessary to carry out their duties. Organised labour must
also gear up for the monitoring and enforcement of the minimum wage across the country. This
should be in close partnership with organised private sector; the National Employers
Consultative Association (NECA) and various state governments to ensure seamless
implementation of the minimum wage. In addition to these there must be social dialogue and
consultative meetings among stakeholders. The ILO in her Update on minimum wage
developments observes that the active involvement of social partners in both the design and
operation of minimum wage enforcement regimes is essential to enhance their impact. The
update adds that the United Kingdom, in the face of growing problems of underpayment of
minimum wages, organized consultative meetings with interested parties to discuss the suitability
and implications of suggested changes to the minimum wage enforcement regime.

Also the US Department of Labour involved employers’ and workers’ organizations in planning
their enforcement activities so as to counter the decline in the number of actions to enforce the
Fair Labour Standards Act between 1997 and 2007. Nigeria can therefore apply international
best practices on similar issues which include effective dialogue and consultation by the
stakeholders for the purpose of achieving a seamless implementation and better management of
the minimum wage in the interest of industrial peace and harmony, and our post-recession
economy. To forestall industrial crises arising from national minimum wage, meeting of the
social partners should always be convened to agree on the broad guidelines for the
implementation of the national minimum wage in the various sectors of the economy including
the public service. There is need for adequate arrangements to give proper publicity to minimum
wage provisions as well as the provisions of the minimum wage law in languages or dialects
understood by workers including illiterate persons so that ignorance can be removed and people
are aware of their rights.

There is also need for proper and credible enforcement mechanisms with adequate legal backing
to discourage non-compliance. Without adequate mechanism for its enforcement, the minimum
wages would not succeed or have any practical use. Non-compliance tends to be extremely high,
where the sanctions are minimal. This paper calls for effective sanctions against erring states and
organizations. The penalties in the extant Minimum Wage Laws in Nigeria are very small and
should be reviewed. For instance Section 8 of the Principal Act (1981 National Minimum Wage
Act), which prescribes a fine not exceeding N500 or imprisonment for a term not exceeding three
Months or both, should be amended to ‘a fine not exceeding N100, 000 or to imprisonment for a
term not exceeding six months or both such fine and imprisonment’. Also Section 3 of the
Principal Act which prescribes “a fine not exceeding N100 and in the case of a continuing
offence a fine not exceeding N10 for each day during which the offence continues, should be
amended accordingly to discourage non-compliance by organizations. Since the employers’
capacity to pay may vary greatly between establishments of different sizes, and particular
attention should be paid to the level of unskilled workers’ pay.

Conclusion
In conclusion, the minimum wage policy in Nigeria is a crucial aspect of labor regulations and
social protection systems. It serves as a mechanism to ensure that workers receive fair
remuneration for their labor, protecting them from exploitative practices and reducing income
inequality. The policy has evolved over time in response to changing labor dynamics and societal
needs. The successes of the minimum wage policy in Nigeria include providing a reasonable
income to meet workers' basic needs and raising their standards of living. It also encourages
employers to use human resources more efficiently, leading to increased productivity.
Additionally, the policy contributes to poverty reduction and serves as a principal component of
welfare-boosting macroeconomic policies.

However, there are also shortcomings associated with the minimum wage policy. It is often used
for political rather than socio-economic reasons, leading to wage increases that do not adequately
match the rising cost of living. Moreover, the enforcement of minimum wage regulations and
penalties for violators are crucial factors in ensuring its effectiveness.

Theoretical perspectives, such as Efficiency Wage Theory, provide insights into the economic
implications of minimum wage policy. It highlights how higher wages can enhance worker
productivity and contribute to overall economic efficiency. Additionally, the Poverty Reduction
Theory underscores the role of minimum wage policy in addressing income inequality and
improving the well-being of vulnerable workers. To further enhance the effectiveness of
minimum wage policy in Nigeria, several recommendations can be considered. These include
improving enforcement mechanisms, ensuring adequate compensation for workers whose rights
have been violated, and involving social partners in the design and operation of minimum wage
enforcement regimes. Additionally, there is a need for policy reforms that address the
shortcomings of the current policy and ensure that wage increases align with the rising cost of
living.

Finally, an effective minimum wage policy is crucial for promoting social justice, reducing
income inequality, and protecting workers' rights in Nigeria. Continued research and policy
development in this area are essential to ensure that the minimum wage policy remains relevant
and responsive to the evolving labor market dynamics and societal needs in the country.