Political Decision making…. hike up the minimum wage

GEJ’s request to hike up the minimum wage to N18000 was recently approved by the senate. This is a classic case of making popular decisions that are actually bad for the country. What are the real implications of the minimum wage hike?

First of all it increases unemployment amongst the people affected by the minimum wage hike. Higher minimum wage means labour becomes more expensive for businesses which means they cut some of their workers. I am not entirely sure if the new minimum wage applies to both the public and private sector but even if it applies to just the public sector the knock on effects will affect the private sector in the same way.

Secondly the new minimum wage hike makes local production less competitive. Hey, you have to pay more to get the same amount of labor.  This means it is a bit more profitable to import stuff than it is to produce it locally. Of course unless they hike up the minimum wage in China.

In an economy dominated by the public sector a hike in the minimum wage should lead to higher inflation down the road as well. We seem to be hearing a lot about inflation nowadays. Well you can add this to the arsenal of the dooms day inflation guys.

Last but the not the least, shouldn’t this administration be trying to cut its recurrent expenditure? They go on and on about how the budgets need to be re-tooled to focus more on capital projects and infrastructure (spending that makes a difference in productivity) and less on wages and recurrent spending ( spending that really just goes to importing stuff from China).

I should point out that the arguments for hiking the minimum wage is that poorer people get more money. The poorer people who still keep their jobs that is.

So why on earth would they make this kind of decision? Oh yeah elections……

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