Why wage increase is good for economy

Wage increase for workers has the propensity to spur domestic demand, boost supply and expand local productivity. It can also enhance domestic liquidity and create a robust and efficient market capable of attracting foreign and local investors. The supply-side traditional economics that has dominated Nigeria’s policy space since 1999 has nearly run its course, and the practitioners, including official economic advisers, have not cast their net wide enough to appreciate the boundless space of economic science to tackle new problems from a dynamic and fresh perspective.

The near canonisation of supply-side economics by Nigeria’s authorities and their official economic advisers have perennially ignored the simple axiom of one of the world’s economic thinkers, Kenneth Galbraith, that economic policy should never be held as a religious faith, for the simple reason that such an attitude will damage the critical factor of pragmatism that is implicit in economic science.

What will a robust wage increase for Nigeria’s working people or a demand-side economic outlook do the current state of the Nigerian economy? The slump in the local supply of essential and basic agricultural products such as food and its ancillaries, which has triggered high prices, is because of weak demand that is associated with poor wages.

Due to poor and stagnant wages, many workers are compelled to forsake the purchase of new modest furniture for their homes and even cannot afford to repair the old broken ones. The result is that a carpenter who would have been engaged to make new furniture is lying idle and not productive. Had the average Nigerian worker earned enough to buy modest new furniture or even repair the old ones, he would have created a demand for the carpenter who would, in turn, ensure a supply of his services. The outcome of such is that the market in which the two operate and interact will not only ensure price stability but also create the conditions for social amity necessary for peaceful coexistence.

A worker with a stable and sufficient wage and income will boost steady demands for food items, thereby expanding production and ensuring a stable supply and price stability. It should be stated that price stability drives away inflation and other market distortions.

A wage increase for Nigerian workers will not trigger massive capital flights and relocation of domestic capital, as humongous liquidity in the hands of the elite would do and has been doing. Nigerian workers with reasonable liquidity from a wage increase won’t seek palatial mansions in Dubai and other foreign countries but may decide to build or buy a modest bungalow, thereby triggering demand for local artisans that include block moulders, carpenters, welders, local interior decorators and others.

In a situation where the average worker experiences a wage increase, the demand for local tourism would revive the local tourist industry that is comatose. Constant patronage of the nation’s tourist industry can lead to a rise in economic activity; thereby employing more labour force.

When workers’ wages are increased, it has the propensity to create the liquidity that characterises an efficient market. The main reason why China and other Asian tigers have become the magnet for foreign investors is because of the efficient market in which stable and steady demands for goods and services offered by foreign investors are guaranteed, with good prospects of profitable returns on investments.

Singapore, the Asian famous city-state known for its meteoric rise, sealed its iconic status as a magnet for foreign investors and the oasis of high social mobility and stability with high wages for workers. Despite the political and ideological differences between China and the West, including the West’s posturing of “decoupling”, the Chinese market of 800 million middle class, the largest in the world, remains a premium magnet for European, American and Japanese investors who see a prospect in China and have refused to be distracted by the chilly rhetoric of the political establishment.

Chinese and other Asian markets came into reckoning by creating a demand/supply equilibrium in which their workers earned sufficiently enough to boost a viable domestic market that also became attractive to foreign investors. China never held any investment summit abroad but maintained a pragmatic policy environment which encouraged and built up a stable domestic market. With the increasing political rhetoric of “decoupling” by the West, the Chinese authorities designed a pragmatic policy response named “double circulation” in which Beijing outlined that while the domestic market and international market would freely interact, the emphasis would be on building and consolidating the domestic market so that any shock arising from the disruption of the international market would be better managed, without any consequence for domestic upheavals.

No economy for that matter can effectively manage the periodic turbulence of the international market without substantial stability of the domestic market. Domestic markets cannot endure for long with a wage freeze or low wages for workers without incurring the disturbing maladies of inefficiency, low morale in the workforce, and social ills such as corruption, indolence, banditry, terrorism and others.

In Nigeria, the usual government response to the issue of a wage increase for workers, which is that workers are only a small fraction of the total population, is untenable. The other point that the government does not have enough money to fund a robust wage increase is untenable from an economic point of view.

The reason for public expenditure is to expand the wealth that arises from the vigorous interaction of demand and supply in an orderly and efficient market. A government that awards to itself along with its personnel, disproportionate size of the public expenditure, as evident in the lifestyles of government personnel and assorted retinue of their hangers-on, is the principal reason for the distortion of the domestic market and all the consequences of social, economic and political upheavals that arise from it.

As the government of President Bola Tinubu and the representatives of the Nigeria Labour Congress and the Trade Union Congress have fashioned out the basic or minimum wage for Nigerian workers, let it be clear that a robust wage increase is in the best interest of the Nigerian economy. For so long as the Nigeria economy catered for the greedy few with consequences of low productivity and weak demand, let the economy now function to meet the needs of Nigerians and the country will experience untrammelled growth with the outcome of integrated and inclusive development.

The case for a robust wage increase for Nigerian workers is not just moral but of socioeconomic significance.