Macroeconomics of Minimal Wage

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Abiodun O. Folawewo*

Abstract This paper examines the macroeconomic effects of minimum wage (MW) policy in Nigeria using a static computable general equilibrium. Data pertaining to the study is definitely drawn from yr 2005 National Account from the country. The data is used to create a twenty-two x twenty two social accounting matrix (SAM) for the economy. The tuned exercise demonstrates that the model's parameters are able to replicate the baseline data with satisfactory precision. Ruse results display that a within MW will lead to improved productivity in all of the economic areas. The impact of MW boost on career is blended; while it causes marginal surge of career in gardening sector, there exists a marginal fall in services sector's employment, with out significant effect in manufacturing and mining and oil sectors. In terms of selling price effect, an increase in MW might lead to a tremendous rise in general price level. A rise in MW offers positive effects in household salary and usage, as well as on government balances. JEL Code: C680; E640; J380

Prepared pertaining to presentation with the CSEA Conference 2007: Monetary Development in Africa, Oxford, 19 - 20 Mar 2007

2. Abiodun To. Folawewo, PhD, Lecturer, Division of Economics, The University or college of the West Indies, Mona, Kingston six, Jamaica. Tel: +1 (876) 512-3011; Fax: +1 (876) 977-1483. Email: [email protected] com, abiodun. [email protected] edu. jm.

Macroeconomics of Minimum Income

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Macroeconomic Effects of Minimum Wage in Nigeria: An over-all Equilibrium Research

Introduction Salary policy is generally used as a principal element of welfare increasing and lower income reduction macroeconomic policy structure in Nigeria. Minimum income (hereafter MW) legislation is known as a major income policy quickly employed in this kind of regard. Though MW coverage has equally negative and positive effects around the overall overall economy, policy makers, especially politicians, have used it more often for political purposes than intended for socio-economic factors. MW legislations in the country have been preceded by high pumpiing rates that erode getting power and bring decrease in welfare (Adams, 1987). Consequently, the need for MW legislation, which normally leads to a rise in nominal wage, is validated as a means of adjusting income and salaries to match while using rise in costs of living.

It is, however , notable that wage increase brought about by MW is usually backward. Apart from leading to a rise on the whole price level, wage raises, are always accompanied by threat of reduction in govt workforce, and perhaps, such hazards have lead into large laidoff inside the civil support (Olaleye, mid 1970s; Owoye, 1994). Also, income increases in Nigeria do not match up with the rate of increase in rates. As a result, you will encounteer agitations from your labour unions for persistent wages and salaries enhance. This regular call for within wages is in times based on the extensive gap among public sector's and private sector's wages. The gap among public sector's and private sector's wages provides often been given as one basis for the ineffectiveness and data corruption in the open public sector. It can be argued that public sector workers ought to have adequate compensation commensurate with their labour, in other to bring about efficiency (Obasanjo, 1999).

Taking into consideration the above, a large number of stakeholders, particularly the labour union organisations, have severally needed wage indexation. However , presented the problem with wage indexation, government has found a convenient mean of raising salary by establishing Wage and Salary Commissions (WSCs) a couple of

Macroeconomics of Minimum Salary Draft: Tend not to quote through the years. Although WSCs are meant to provide a wide-raging solution to civil support problems, increase in salary and wages is normally inserted in the advice of such commissions.