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On 18 April, President Muhammadu Buhari signed into law the Minimum Wage Repeal and Re-Enactment Act 2019, which prescribes an upward adjustment in national minimum wage to N30,000/month (US$83.3)from N18,000 (US$50.0).
The 67 percent increase in minimum wage follows months of agitation by the labour union which, in our view, is not misplaced, considering the purchasing power of the previous minimum wage more than halved between 2011 and 2018.
Nigeria’s labour productivity barely grew within the period, with data from the National Bureau of Statistics (NBS) showing per unit labour productivity (real output of employed population per hour) grew in real terms at a rather underwhelming Compound annual growth rate of 1.2 percent between 2011 and 2016.
However, our analysis reveals labour unit cost (real compensation of employed population per hour) fell at an annual rate of 4.2 percent within the same period. This implies that unit labour cost has not kept up with the modest growth in productivity since the previous minimum wage was passed in 2011.
Impact on medium term growth limited by slack labour market and weak fiscal revenues
Although we expect the increase in minimum wage to have a positive knock-on impact on consumption expenditure-which has stagnated in recent years -the policy falls short of deeper fiscal and economic reforms required to lift medium growth outlook above 3 percent level.
Our conclusion rests on two arguments. First, the capacity of the Federal Government (FG) and sub-nationals to fund higher personnel costs without reducing public investment in human and physical capital is limited.
This is against the backdrop of unresolved revenue challenges, reflected in limited fiscal space to raise aggregate expenditure or significantly increase deficit spending. Secondly, the private sector will struggle to implement the new minimum wage in the interim, … Read More...