Effects of Minimum Wage in Public Sector on Selected Macroeconomic Variables in Nigeria.
ABSTRACT
Minimum wage legislation is meant to give wage earners the necessary social protection in terms of minimum permissible level of wage. But despite these positive intentions, the policy has been highly criticized by many as its performance has also been doubted. This study examines the effect of minimum wage in the public sectors on selected macro-economic variables in Nigeria between 1970-2010 with special focus to find the effect of minimum wage on inflation, private consumption, fiscal balance and total factor productivity.
The study made use of secondary data which were analysed using the ECM model by applying Eview software. Unit Root test was first conducted for both dependent and independent variables using the Augmented Dickey Fuller (ADF) approach at 5% level of significance and all variables were found to be stationary, co-integration test was also conducted using the Enger- Granger approach. The study used ECM having realized that there were some cointegrated series within the models.
The result revealed among others that minimum wage legislation had a negative (-0. 707718) and insignificant (0.8966) relationship with inflation rate. Results also indicated that minimum wage had a positive (0.155680) and significant (0.0350) relationship with private consumption but the effect of minimum wage is negative (- 0.659084) and insignificant (0.2044) on fiscal balance and finally it was found that minimum wage had a negative (-0.116879) but insignificant (0.0654) relationship with productivity index.
INTRODUCTION
It is no longer unusual to hear that workers are agitating for increase in their wages and salaries especially in the public sector where several times workers have had to embark on strike actions just to get their wages and salaries increased, the history of income policy has longed being in existence as far back as the colonial rule. Many have argued that public sector workers deserve adequate compensation commensurate with their labour in order to bring about efficiency.
This is because in the view of many, the Nigerian public service seems to be associated with inefficiency, negligence and mis-management (Efe 2006). Thus, in view of this, labour union organizations have severally called for wage indexation to improve the well-being of the workers as it is believed that when the income of the worker is able to meet his basic needs the workers will be motivated for greater productivity in this sector.
There is a general consensus that minimum wage increase is usually followed by increases in price, which tends to undermine its objective of raising the standard of living of the workers. In a situation where wages are eroded by high cost of living implying that the worker though with an increase in wage resulting from minimum wage reviews can purchase very little with the available income.
Again, minimum wage increases may introduce distortions into economic activities in a number of ways. First, in a number of cases following the agreement or announcement of a minimum wage increase, it is observed that state governments do not comply. For instance, many state governments refused to implement the federal government recommended minimum wage in the year 2000.
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