The minimum wage has long been a controversial subject, especially with concerns that employers could exploit workers by paying them less than a fair wage. In the past couple years, the push to increase the minimum wage has been highlighted by many workers in the pandemic being deemed essential, but the pay was effectively minimum wage. There are many arguments for and against increases to the minimum wage, but there are also prevailing economic theories that explain the effect of minimum wage on unemployment.
The minimum wage in Nigeria has been steady at NGN 30,000 since 18 April 2019 but many states, cities, and local government are poised to raise that to varying levels this year. In 2023, the Government of Nigeria announced an additional NGN 35,000 wage award (wage subsidy) for six months, starting from 1 September 2023. The total amount payable to a worker would be NGN 65,000 per month.
However, economists remain uncertain as to the long-term impact of these policies on the welfare of Nigerian workers. Some studies suggest that raising minimum wage has a small negative effect on employment rates, while others find no such adverse effect on employment. If the market wage is low, a binding minimum wage can make employment more attractive to workers, which strengthen their search efforts and so reduce unemployment. If the market wage is high, a binding minimum wage might discourage workers from looking for a job because there are fewer vacancies.
But raising the minimum wage does not automatically guarantee workers higher income, employment, and welfare in the long run. Part of what makes it so tricky to quantify the impact of minimum wage policies is that they can influence firms’ behaviour in a variety of complex, interrelated ways. If an increase in the minimum wage requires a firm to, say, double the wages it pays to a worker, it may decide to just not hire that worker anymore and instead do their production with another worker. However, it will take time for firms to reorganize their production practices in a way that no longer requires such workers.
- EDTD researchers have examined how the minimum wage affects workers and the economy, who benefits from the minimum wage, and how the declining value of the federal minimum wage over time has contributed to the growth in Nigeria income inequality.
- EDTD researchers study suggests that firms may strategically respond to minimum wage increases by changing their approaches in other areas, such as downsize workforce or worker schedules, thereby resulting employments and underemployments.
- EDTD researchers examine minimum wage increases accompanied by a host of other external factors and policies, making it difficult to identify test environments that enable a true apples-to-apples comparison of before and after minimum wage increases.
- EDTD researchers provide compelling evidence that responses to a key labour market institution (the minimum wage) are influenced by the structure of the labor market. As such, the findings also help to further underscore the role of employer concentration in the labour market.