76,400 Naira: Should this be Nigeria's new minimum wage? Find out how COLA can determine fair wages!

???? Setting Nigeria's Minimum Wage: Guessing Game or Data-Driven Solution?

Turning over issues from the past week and the state of things in Nigeria, a recurring theme got my attention — the month-long debate between the Nigerian Labour Congress and the Federal Government of Nigeria on the new minimum wage.

Nigeria's minimum wage battles are legendary for frustrating everyone, including lengthy negotiations, political influence, and arbitrary decision-making. Different numbers have been thrown around, and one wonders how they were arrived at—some laughable to some extent. Then, it dawned on me that we can make the process predictable, simpler and transparent while saving time and money!

This article proposes a structured and formulaic approach to minimum wage determination, rooted in the Cost of Living Adjustment (COLA), to bring clarity and efficiency to the process.

This analysis proposes a new system based on the Cost of Living Adjustment (COLA). COLA uses inflation data to adjust the minimum wage each year automatically. Using the Cost of Living Adjustment (COLA) as a basis for annual adjustments seems logical, as it directly reflects changes in the purchasing power of households living on minimum wage. Relying on data from the Nigerian Bureau of Statistics adds credibility to the calculation method.

The formula;

A COLA effective for December of the current year is equal to the percentage increase in the Consumer Price Index (CPI) from December of the current year to December of the last year in which a COLA became effective.

• We look at how much prices have gone up or down for things like food, rent, and transportation.
• We use that information to calculate the COLA, which tells us how much the cost of living has changed.
• If the cost of living has gone up, we adjust the minimum wage to make sure workers can still afford the basics.
• If the cost of living stays the same or goes down, there's no need to change the minimum wage.

The formula for calculating the yearly adjusted Cost of Living increase is:

(Base average CPI for Q3 2023 - Base average CPI for Q3 2022) / Base average CPI for Q3 2022 ) x 100

Ideal National Minimum Wage 2024;

With data from the Nigerian Bureau of Statistics, here is the ideal minimum wage; has all the data for calculating this.

CPI since the last minimum wage increase (%):

Dec 2019: 11.98

Dec 2020: 15.75

Dec 2021: 15.63

Dec 2022: 21.34

Dec 2023: 28.92

Y-o-Y % change

Year 1: 4.72

Year 2: 31.47

Year 3: -0.76

Year 4: 36.53

Year 5: 35.52

The new minimum wage per year, according to COLA:

Dec 2019: 31,416 = ~31,400 naira

Dec 2020: 41,302 = ~41,300 naira

Dec 2021: 41,302 = no increase

Dec 2022: 56,389.62 = ~56,300 naira

Dec 2023: 76,418.33 = ~76,400 naira

Hence, the realistic minimum wage for Nigeria should be 76,400 naira

My calculation demonstrates how this method could work in practice, arriving at a minimum wage figure of 76,400 naira based on recent CPI data. This approach aligns with international best practices in wage determination, where adjustments are tied to objective economic indicators.

Regional Considerations for Minimum Wage Setting in Nigeria

The cost of living varies significantly across Nigerian states and the COLA might need regional adjustments to account for these differences. A single national COLA might not reflect the differing inflation rates across states. Lagos, for instance, might have a higher COLA than Enugu. This could lead to:

• Over-compensation in some regions: Businesses in states with a lower cost of living might find the minimum wage burdensome.
• Under-compensation in others: Workers in states with a higher cost of living might still struggle to afford necessities.

Possible Solutions:

• Tiered minimum wage system: Establish multiple minimum wage bands based on regional COLA indices. This would ensure a more targeted approach.
• Regional COLA indices: Develop COLA indices for specific regions within Nigeria. This would require collecting state CPI data.
• National minimum wage as a baseline: Set a national minimum wage as a base floor, with additional COLA adjustments based on regional indices.

The benefit of a COLA-based minimum wage system

Adopting a COLA-based minimum wage system offers several benefits for workers, employers, and the economy as a whole.

1. It provides stability and predictability, reducing uncertainty in the labour market and facilitating long-term planning for businesses.
2. It ensures that workers' wages keep pace with changes in the cost of living, preserving their purchasing power and improving their standard of living.
3. It enhances transparency and accountability in wage determination, fostering trust between the government, workers, and employers.

Setting the minimum wage shouldn't be a guessing game. Do you agree, let me know in the comment section

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