**
****M.D. Imobighe **

**Department of Economics, ****Delta**** ****State**** ****University****, Abraka.**

*Abstract*

*This research work has been carried out to analyze the critical impact of minimum wage of employment level and productivity in **Nigeria**. A brief literature on wage and its determination was highlighted. Models on minimum wage effect are being look into. This includes research work done by different economist analyzing it (Minimum wage). Data on minimum wage (Independent variables), employment and productivity (dependent variables) were got from the Federal Bureau of Statistics. For better computation of data, the data got was run through the computer using the coefficient of determinants, the student’s t-test and the standard variable, wi-minimum wage variable. This was undertaken to analyze the effect of minimum wage had on employment and productivity. Also, in order to compare data ranging from 1980, 1982 . 1983 and 1984 were used***.**

*Based on the finding of this research work, the minimum wage did not have a serious negative effect on employment as expected. As for productivity, minimum wage had a positive effects but is was not as high as expected i.e (minimum growth). In the light of the above, recommendations such as subsidies rather than wage restraint was given. A more realistic minimum wage that will put majority above subsistence level were also given for better policy making.*

**Keywords:**** **Wages, Employment, Productivity and Development*.*

**Introduction**

This research work is the analysis of the critical impact of minimum wage on the employment level and productivity in the Nigerian economy.

Looking back, the minimum wage legislation is a very important criterion in the payment of wages. The premise of this criterion is that by the introduction of minimum wage, the exploitation of week, ill informed or isolated groups of individual s will be prevented. Minimum wage will also afford then more comprehensive protection than is available through the existing voluntary bargaining machinery.

There are some worker who earn much less their marginal contribution to the production process. It is argued that the introduction of a minimum wage will provide a more comprehensive and complete for the low paid than does the existing system of weak bargaining between such employment and their employers. On this argument, the objective may be to afford the worker a reasonable income to meet their basic and raise productivity of the workers.

Another argument, which has been put forward in favour of a minimum wage, is that by its introduction, it would deprive employers of using unreasonable cheap labour; encourage them to use manpower more efficiently and therefore, raise productivity.

Therefore, whether a minimum wage succeeds in its intended goal will depend apart from the criterion used, on the level at which it is fixed. It is basically from these view points that minimum wage fixing will affect the covered sector’s ability to pay. On the Nigerian scene, the history of events leading to introduction of the N125.00 minimum wage in June, 198 shows that there was actually, some flexing of muscles between a government and the Nigerian labour Congress (NLC).

The presidential award of 1980, (The Shagari award) was an inducement for the trade union to divert the trade unions from their insistence on a minimum wage of N300 a month. The origin of this demand dates back to the Nigerian Labour Congress (NLC) “chapter of demands” presented to the new political leadership in January 1980. The charter itself was undoubtedly by electoral campaign of 1979 which induced several election promises by politicians. In any event, the N300 demand was arrived at one the basis of what the congress estimated that a family of six needed to maintain a decent living standard.

Following the tussle, a tripartite body comprising the Nigerian Employers Consultative Association (NECA), the Nigerian Labour Congress and the Federal Government was set up in April 1981 to deliberate on the demand of the NLC. After a series of meetings, culminating to a two day national strike instituted by the NLC. The senate in June 1981 fixed a monthly national minimum wage of N125 and this was accepted by the NLC.

Against the background, it is appropriate to mention here that wages and salaries have included the idea of a national minimum wage in their recommendation. Some of such commission include, among others, the Udoji Commission (1972 - 74). The Morgan Commission (1964), and the Adebo Commission (1970 -71). Due to the increase in inflationary rate, trade that are striving for an increase in the minimum wage.

From the forgoing, it becomes clear that the imposition of a minimum wage as regards this research work is being analyzed with the assumption that it would have an adverse effect in the employment level and a positive effect on productivity in the manufacturing sector.

**A Review of Wage Theories**

Given the importance of wage payment in the overall economy to the employee and employer, one can appreciate why consideration efforts have been expanded in explaining the dynamics of wage fixation.

Yesufu (1982) emphasizes that “where the majority of the labour force are wage and salaries worker or employees . .. even as small general increase in wages, which is not matched by a corresponding increasing productivity, could be inflationary and reduce the country’s competitive position in world market”.

Backamn (1959) also says that “what happens to wages is of critical concern to every one. To the worker, wage represents income, to the businessman, they represent cost; and to the government they represent potential taxes. Wages are the largest sources of purchasing power, hence changes in labour income have an important bearing on the level of economic activity”.

It could be drawn from these expression that the important of wages by saying that it is significance from its being the dominant source of, as well as the solution to most labour problem.

The evolutionary path of wage theory spans that classical times and the modern. The classical period ending around 1870 was dominated by the subsistence the marginal productivity theory which held away in first half of this century. The limitation of the explanatory utility these models gave rise to the bargaining theory which is the most recent of them. The perceived weaknesses of those theories do not really originate from their intrinsic deficiencies mainly.

Dunlop (1957) says that “ The task of wage theory the questions which have conceived successive generation of economist has not always been the same. Indeed, the wage theory of a period can be interpreted as product of:

- The economic development and quantities of the time and place including the movement of wage rates.
- The wage setting institutions
- The dominant economic theory of the period
- The policy issues of the day

He concludes by stressing that “…an understanding of the wage discussions of the past must seek to recreate these features of the context.”

The subsistence theory of wages had some noticeable variant. One of such is the mercantilist school, which is perhaps the first group of economic thinkers to the theories on the issue of wage. Philip (1984) underlying their thinking is the problem of establishing a favourable balance of trade, the solution to which they saw in manufacturing industries. They opined that wages must be fixed absolutely to save the national interest. These national which they claimed to represent as to outsell their foreign competitors and if this was to be successful, wages of the workers are kept at the barest minimum, so as not to raise cost of production and consequently the price of their goods. Thus, the wage recommended should be that which could keep the labourer or worker and his family interest, which was the basic consideration of his group.

**Theoretical Framework **
Nigeria has had her own share of the universal argument regarding the ability of trade union to raise wages. Fashioyin, (1980). Generally the argument is a reflection of the fact that wages are consequence of a tangle network of causal factors, isolating and evaluating the contribution of individual causal element in such decision is implicitly hazardous. However, with the restructuring of the Nigerian trade unions movement in 1978 along industrial line thus strengthening them compared to their previous state, one can discern some impact of these union on the wage levels and other employment conditions.

The situation now is that with the limits of productivity, prices and income boards guidelines and the natural minimum wage, the respective industrial union should bargain with the employers to reach collective agreements which must be deposited with the federal ministry of labour. The concessions won for the member by these union within the limits of the above policies then represented the union.

Post 1978 incidence which goes to demonstrate the power of the present industrial unions could wield especially in relations of wages was the 1981 general strike from which workers in the country among other concession won the current 125 Naira minimum wage.

As regards minimum wage legislation effects, literature on this is quite rich with respect to developing countries and relatively nothing for Nigeria. One thing needed to point out from the onset, is that most of the studies on the subject have tended to evaluate the effect of minimum wage laws on terms of employment.

One of such studies is that Olufemi Fajana, (1973). His study was not specifically on minimum wage as such but on “Employment and wage change in the Nigerian manufacturing sector”. The relevance of this comes on mind since it is the robustness of the data sources use for the study. Besides, minimum wage laws in Nigeria context essentially involved upward revision of wages as is in many other countries where this legislation has been enforced and therefore, the study stands as a good proxy of minimum wage effects.

In his study, he postulated, a prior, that relationship between employment and wage change is negative and relied on a model of the sort.

E1 = a1 + d2 wi . . . . . . . . . . . . . . . . . . 1

E2 = X3 + X4 wi + X5 vi . . . . . . . . . . . 2

Where E, wi and vi are respectively, and average wages and value added. The source of data for the study’s estimation of the equation is from the federal office of statistics. “Industrial surveys for 1963 - 1970” for the measures of growth in employment wages and value added average annual percentage increase were calculated, for the relevant period of 25 manufacturing industries. These industries were representatives of the Nigerian economy.

His empirical result shows that there was strong and negative relationship between employment and wages change in the Nigerian industrial sector. Specifically, the result showed that a 100 percent increase in average wages will lead to 23% fall in employment. Thus, the wage elasticity of employment was found to be more than 2. However, the R2 showed a less than 19% of variation in employment explained by the change in average wages. When value added as a measure of out put was included in the equation, it was found to have a very significant effect on employment. His findings were that wages have had some influence in the Nigeria industrial employment growth and that on increasing substitutability of capital for labour in manufacturing sector was explained by relative cheeping for factor price of capital; about by government’s industrial policy. This policy consideration was that in order to increase the absorptive capacity of labours, a policy of labour subsidy would be more appropriate.

Marving Kosters and Finis Welch (1972) have also attempted to study the effect of minimum wage on the distribution of changes in aggregate compliment. Their main concern was to see how minimum wage have differentially affected employment opportunities for demographic groups after getting out cyclical movement and taking long, term trends into accounts. They went about it by developing a model to characterize employment patterns of different demographic groups though time. In their framework, they estimated the effects of minimum wage legislation on the distribution of employment between whites and whites, between males and females, and between teenagers and adults.

On the methodology, their model relied on distribution between employment trends and deviation from trends,. It is of the form:-

Eit = 0Ept + bert + uit . . . . . . . . . . . . . . . . . . . . . . 1

Where Eit is the number of workers in the 1st age, colour, sex class employed in period tjept and Ert are aggregate employment measurement. The co-efficient O and B are respectively, the share of the group in assumed to the transitional employment 1r and B were also assumed to be dependent. On the minimum wage level and extent of coverage. The residual, Unit is introduced into the model as follows:

Log Yit = Log Yoi + zpi Log (1 + ri)……………………………..2

Log Bit = Log Boi + zri Log M + t Log (1 + ri)…………………..3

The trend factor, ri is the long-term growth rate of the employment share for the ith class. The variable M”t is the effective of minimum wage and zpi and zri are the elasticity’s of employment shares with respect to the minimum wage. The data used to estimate the model were quarterly average of seasonally adjusted employment for eight age, colour and sex classes.

From the model, they were able to show that employment share (tit and bit) varied over time because of the trend and because of changes in the effective minimum wage. The overwhelming feature of their estimate was relative vulnerability of teenagers to employment change. Specifically, the 0 per-cent decline in aggregate employment compared to 0.8 per-cent decline for adults. The estimate means that during contraction, teenagers are found at times as likely to loose their jobs as adults. Even within the teenage group itself, non-white were found to be more vulnerable to changes in aggregate employment, the estimate being that at a 1 per-cent decline in aggregate employment by 5 percent.

The model considered a non-linear demand for labour function as:

D = a 1b Xc …. …………………………………………………… 1

Where D is the demand for labour expressed in number of workers. 1 is an index of industrial production for labour; a,b and c are parameters and X is the real minimum wage.

The equality

S = dX1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Therefore, is a non-linear supply of labour function where S is the number of workers offering their services and d and f are parameters. Thus, from equation 1 and 2.

(S D) s 1 (a/d 1bXc – 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Since the unemployment rate, U is represented in percentage terms

U = (S - D)/s X 100 and 3 becomes

U = 100 – 100 (a/d) 1aX1 . . . . . . . . . . . . . . . . . . . . . .4

For downward sloping and upward sloping supply functions, C is less than 0 and f greater than 0, so that C – F is less than 0 du/dx is less than 0 using new parameters, 4 can be approximated by the following expression in log from

Invit = Bim + YinX . . . . . . . . . . . . . . . . . . .. . . .5

To estimate the extend of unemployment effect, unemployment elasticity for both race-sex groups, it was found that unemployment elasticity was high.

For teens at 5% significant level was high. This high elasticity was most profound for non-white teenagers. Unemployment effects were also determined after 8, 16 and 24 months by lagging the minimum wage variable in equation 5. All the elasticities were found to be significant at 5% level. The most remarkable feature the lagged estimate was that after 2 years the unemployment effects of a change in the federal minimum wage were quite substantial and in most cases greater than immediate effect. It was concluded that increase in federal minimum wage causes unemployment among teenagers. The effect tended persist for considerable period of time and the effects seemed to be increasing through time.

##

**Hypotheses and Model Specification **

It would only be appropriate to recall the hypothesis that would be tested in this research work.

For Employment

(NULL) H0: Minimum wage increase does not have a significant positive effect on employment in the manufacturing sector.

(Alternative)

Hi: Minimum wage increase has a significant positive effect on employment in the manufacturing sector.

### For productivity

(Null) H0 Minimum wage increase does not have a significant positive effect on productivity in the manufacturing sector.

(Alternative)

Hi: Minimum wage increase has a significant effect on productivity in the manufacturing sector.

Based on the above hypothesis, the following are specified

Log E1 = a0 + b1Log W1 . .. . . . . . . . . . . . . . . . . . . .1

Log P1 = a1 + b2 Log W1 . . . . . . . . . . . . . . . . . . . . 2

E1 = a2 + b3 W1 . . . . . . . . . . . . . . . . . . . . . . .3

P1 = a3 + b4 W1 . . . . . . . . . . . . . . . . . . . . . . . . 4

Where E1 are employment and productivity respectively, while W is the minimum wage variable, a and b are parameters to be estimated and an ordinary least square (OLS) regress ion is run for the equations.

In equation 1 and 3 the level of employment depend on minimum wage a priori, it is expected that employment as minimum wage increase the cost in order to maintain profit margins or levels, he embark on the reduction of employees ceteris paribus .

The coefficient b1 and a + 22 are expected to be less than zero, a0 and b2 are positive coefficient.

With respect to question 2 and 4, a priori, it is expected that positive relationship exist between the level of productivity and minimum wage. Increase in minimum wage serve as an incentive to the employee to produce more, ceteris paribus.

The coefficient b2 and b4 are expected to be greater than zero; a1 and b3 prior are expected to be positive coefficients.

In equation 1 and 3, a higher (negative) coefficient in the case of employment level. In equation 2 and 4, the positive coefficient of b + 2 + and b + 4 + will be support of the Hi (alternative hypothesis) in the case of productivity.

For comparison and to see the impact of minimum wage, separate regression for 1980, 1982, 1983 and 1984 are run.

**Data Analysis **

The regression technique of data analysis will be employed as previously stipulated in the methodology of this study.

The logarithms of the dependent variables are regressed separately on the logarithm of the minimum wage variable. The reason is to measure what affects the explanatory variables (minimum wage) has had on the dependent variable (employment and productivity).

The operations were programme and fed into the computer for data of 1980, 1982, 1983 and 1984. Moreover, the figure for the years are average and operations are carried out on them so as to even out the effect of variations.

It would be appropriate to point out deficiencies in the data before discussing empirical results. The industrial survey from which the basic data are derived cover only establishments with ten (10) or more employees, the exclusion of smaller ones from the analysis makes it difficulty to generalized the findings.

The data used are aggregate so much that there would be no difficulties in distinguishing which of the establishment is actually complying with the minimum wages legislation and which is not. Also the nature of the data does not allow for the industries, which are labour or capital intensive in their bias.

#### Statistical Results

##### where E1 = Employment variable

P1 = Productivity variable

W1 = Minimum wage variable

L0 = T-Calculated

T-Tab = T-Tabulated = 1.714

R2 = Coefficient of Determination

S.E. = Standard error of Y estimate and standard error of coefficient

F = Statistical = Calculated

1980

Log E1 = 0.48463 + 0.794786 Log W ……………………………1

S.E. = (0.180439) (0.067702) F-Statistics =139.812

Tc = (11.73933) R2 = 0.356005

Log P1 = 0.116089 + 0.187396 Log W …………………………2

S.E. = (0.385867) (0.144781) F – Statistic = 1.675311

Tc = (1.294338) R2 = 0.067894

1984

Log E1 = 1336.744 + 0.349694 Log W ………………………3

S.E = (2540.374) (0.0235778) F – Statistic – 219.9605

Tc = (2483106) R2 = 0.905334

Log. P1 = 10.33629 + 0.000048 Log W…………………………4

S>E = (12.43769) (0.000115) F – Statistic – 1.675311

Tc = (0.43112) R2 = 0.007651

1982

Log E1 = 0.17044 + 0.911755Log W ……………………5

S.E. = (0.186075) (0.070681) F – Statistic – 139.812

Tc = (12.89947 R2 0.878561

Log P1 = 0.826637 + 0.061457 Log W ……………………..6

S.E. = (0.358772) (0.140080) F – Statistic = 0.013802

Tc = (0.117485) R2 = 0.0000599

Log P1 = 423.281 + 0324799 Log W ………………………7

S.E. = (2225.50) (0.022467) F – Statistic – 208.9903

Tc = (14.45649) R2 = 0.900857

Long P1 = 10.8577 + 0.000007 Long W ……………………… 8

S.E. = (10.36434) (0.000104 F – Statistic = 0.004718

Tc = (0.068692.000205)

1983

Log E1 = 0.3756 + 0.96801 Log W …………………………9

S.E. = (0.1714175) (0.077988) F – Statistic = 1540726

Tc = (12.41260) R2 = 0.870109

Log = 0.116089 + 0.187396 Log W ……………………10

S.E. = (0.403596) (0.180714) F – Statistic = 158972

Tc = (1.596160) R2 = 0.015217

1984

log P1 = 0.082007 + 0.611901 Log W ………………….12

S.E. = (0.288435) (0.103032) F – Statistic = 35.27060

Tc = (5.938906) R2 = 0.602895

Log P1 = 1.2990667 + 0119016 Log W …………………….. 13

S.E. = (0.899805) (0.378146) F – Statistic = 0.003441

Tc = (0.05866) R2 = 0.000149

Log E1 = 458.5148 + 0.265274 Log W ………………………..14

S.E. = (36907.89) (0.396860) F – Statistic = 0.499042

Tc = (0.70614) R2 = 0.021235

** **** **

**Interpretation of Result **

Considering the statistical results of 1980 i.e. equation 1,2,3 and 4 in equation 1, a positive relationship is observed between minimum wage and employment, meaning that as minimum wage increase employment also increases. This result does not conform to/with a priori expectation because we expect that as minimum wage incr4eases the level of employment should decrease.

In equation 2, a positive relationship between minimum wage and productivity observed. This result is as expected. The result implies that as minimum wage increases, productivity also increases. In equation 3, the relationship is similar to that of equation 2.

In all cases, the coefficients of determination are high (above 60%) except in equation 2 where the coefficient of determination is relatively low.. (6%) this implies that in equation 2, a variation in minimum wage only explains 6% of variation in productivity. Equation 4 provides a better result than equation 2, in equation 4, minimum wage explain 60% variation in productivity.

In 1982, minimum wage had a positive impact on employment. This result is not as expected theoretically, increases in minimum wage should have a negative impact on employment level. The result is similar to that obtained in 1980 where a similar positive relationship was observed between minimum wage and level of productivity as seen in equation 6. In equation 7, the coefficient for minimum wage does not beer the apriori sign, the coefficient is positive signifying that as minimum wage increases the level of employment increases. This contradicts the theoretical expectations.

In equation 8, a positive relationship is observed between minimum wage and productivity. The implication is that an increase in minimum wage leads to an increase in the level of productivity. From the result of 1982, it can be observed that equation 5 and 7 have characteristically high coefficients of determination (87% and 90% respectively). The implication is that the 2 equations can be relied upon for predictive purposes since the goodness of fit are satisfactory. The opposite in the case for equation 5 and 8, where the coefficients of determination are approximately 0 (zero)

Coming from the year 1983, the results are similar in equation 9 and 11 for example the same positive relationship is observed between minimum wage and the level of employment meaning that in this year, increase in minimum wage still has same effect of increasing in employment. This result does not conform to/with expectations for reasons previously stated.

Considering equation 10 and 12, a positive relationship is observed between minimum wage and productivity. This result supports the theoretical expectation. With respect to equation 10 and 12, the coefficient of determination (12% and 1%) respectively. The implication is that the equations are not very useful purpose of prediction. The opposite is the case in equation 9 and 11, where coefficients of determination are above 80% in both equations, meaning that both equations are reliable for prediction purpose.

In the case of 1984, with respect to equation 13 and 15 a positive relationships is observed between employment and minimum wage, meaning that increases in minimum wage leads to increases in employment level, the result is not theory is that there should be negative relationship between minimum wage increases and level of employment.

The result of equation 14 and 16 contradicts the actual productivity decreases. This result in different from earlier results obtained in 1980, 1982 and 1983 the coefficients of determination for equation 13 and 15 are quite high. In equation 13 for example the coefficient of determination 60%. This means that 60% variation in employment is explained by changed in minimum wage. The result is reliable and useful for prediction. In the case of equation 15, the coefficient of determination 82%, meaning that the equation 14 and 16 where the coefficient of determination are 0 and 2% respectively. The goodness of fit is low meaning that the equations cannot be reliable for prediction purposes.

The student t-test was also carried out in order to determine if the independent variable (minimum wage) is statistically significant. The result shows that except for equation 2,6,8,12,14 and 16 the minimum wage variable are statistically significant. The F-Statistic test is being used to test the over-all significance of the regression, in this case, if the calculated F is greater than the F tabulated at the given degree of freedom, then the effect of the independent variable (minimum wage) is significant and can be relied on for policy recommendation. This has already been achieved by the use of the student T – test.

** **
**Conclusion and Recommendations **
One of the aims of this study is to make recommendation based on the findings. In the light of the above the following are recommended.

As regards employment it is obvious that the importance of a policy if industrial wage restraint as an instrument for stimulating industrial employment in Nigeria is low. A policy of subsidy (such as tax holidays and tax allowances for pioneer industries) rather than wage restraint, it appears to be more relevant for attaining the objective (employment stimulation).

The government should embark on and stick to policies that will make the Nigerian manufacturers take the issue of increased productivity more seriously and ensure that apart from the wage and salaries of workers they should be provided with no-wage benefits. This will more than anything else lead to higher productivity of workers,.

Evidence has shown that a number of employers are not conforming with the government legislation on minimum wage. Because of the inability to pay and the staff or worker as well are willing to be underpaid instead of being without jobs. In this case, it would be better of if minimum wage is determined through collective bargaining instead of the government unilateral fiat.

A more realistic minimum wage should be determined, one that would put a verse majority of people above subsistence level so as to increase the productivity level.

Based on the finding of this research, no basis exist to suppose that the minimum wage is the sole factor accounting for high rate of unemployment being experience in Nigeria. Although, it was expected to be so, while it support that is has led to a lower employment growth it still does not have enough basis for its abrogation (minimum wage).

With respect to productivity, It has not increase the productivity of the workers as high as expected when compare to when it had not come into effect and should look into its compliance by employers to increase productivity.

The above conclusion and recommendations are entirely based on the empirical findings of this study. Due to the deficiencies, which the data are prone, generalizations cannot be advocated. Assuming that there are no deficiencies however, the above conclusion and recommendations would be upheld.

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