ADSR Report Identifies States Struggling to Finance New Minimum Wage

Analysts at Data Services and Resources (ADSR), a research firm, have identified Benue, Osun, Oyo, Kogi, and Kano as states with the least ability to pay and finance a new minimum wage.

Other states which may find a wage review challenging include Yobe, Adamawa, Jigawa, Kebbi, Plateau, Nasarawa, and Ekiti. Conversely, Lagos, Imo, and Zamfara ranked highest in their ability to pay.

In its recent report titled “The Nigerian New Minimum Wage: Implications for State Governments’ Budget Performance,” the Ibadan-based research institute used four metrics to determine the rankings. ADSR evaluated the states’ ability to finance a new minimum wage by examining the ratio of personnel expenditure to total expenditure, total revenue, internal revenue, and states’ total debt stock.

“This analysis shows that states with a relatively high ability to pay are those currently having a low personnel expenses to total expenditure ratio, a low personnel expenses to revenue ratio (especially IGR), a low debt profile, and relatively high elasticity of personnel costs’ contribution to future revenue and expenditure,” the report stated.

The report highlighted that a new minimum wage is necessary due to the renewed pressure on workers’ disposable income, driven by various government reforms. ADSR economists noted that increasing the minimum wage would positively impact states’ internal revenue through higher personal income tax. However, the wage review would also raise states’ total expenditure, with significant portions allocated to increased personnel costs, allowances, benefits, and overheads.

“Governments will also need to invest in capital projects to align with workers’ new pay and demonstrate the need to raise taxes to fund increased spending,” the report added.

Despite the ongoing calls for a new minimum wage, a 2023 report by BudgIT revealed that no fewer than 15 states have yet to implement the N30,000 minimum wage signed into law in 2019. This situation casts doubt on the states’ ability to afford another wage increase, especially with organized labor advocating for a N250,000 new minimum wage.

How to Finance a New Minimum Wage

ADSR highlighted six strategies for Nigerian states to finance a new minimum wage. The first recommendation is to raise the tax base and invest in an efficient tax collection system, while considering the current economic situation and avoiding multiple taxes to improve the business environment.

Although borrowing to pay salaries is deemed unsustainable, states with low debt levels could consider borrowing to finance a new minimum wage. The report also suggested that grants and aids from the federal government and development partners could help cover the personnel costs incurred from a wage increase, provided such assistance is used for development purposes to free resources for workers.

ADSR recommended reducing ‘ghost’ and redundant staff and commercializing relevant state projects and facilities as additional measures. Moreover, the report emphasized that minimizing corruption and avoiding waste and leakages are crucial for states to sustainably finance a higher minimum wage.

The government and organized labor have been at odds over a sustainable new minimum wage, given the current economic realities. Organized labor has demanded a N615,000 new minimum wage, citing the expiration of the five-year Minimum Wage Act, which raised the lowest wage from N18,000 to N30,000 in 2019. As of June 7, 2024, negotiations have reduced the proposed amount to N250,000.

The tripartite committee on the new national minimum wage recommended N62,000 to the federal government on June 10, 2024, while the National Assembly expressed its willingness to approve an increase to N70,000. Meanwhile, the president is consulting with states and the private sector before submitting a bill to the National Assembly on the new national minimum wage.

During a meeting held on June 26, 2024, at the Nigerian Governors Forum (NGF), state governors pledged to remain committed to the process and assured that better wages would result from the ongoing negotiations. However, organized labor has criticized the governors’ desire to determine their states’ minimum wage as divisive and detrimental to the fight against poverty. They argue that this approach undermines the essence and model of establishing a national minimum wage in Nigeria.

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