Effects of Minimum Wage in Public Sector on Selected Macroeconomic Variables in Nigeria

ABSTRACT

Minimum wage legislation is meant to give wage earners the necessary social protection in terms of the minimum permissible level of wage. But despite these positive intentions, the policy has been highly criticized by many as its performance has also been doubted. This study examines the effect of minimum wage in the public sectors on selected macroeconomic variables in Nigeria between 1970-2010 with special focus to find the effect of minimum wage on inflation, private consumption, fiscal balance and total factor productivity. The study made use of secondary data which were analysed using the ECM model by applying Eview software. Unit Root test was first conducted for both dependent and independent variables using the Augmented Dickey-Fuller(ADF) approach at a 5% level of significance and all variables were found to be stationary, co-integration test was also conducted using the Enger- Granger approach. The study used ECM having realized that there were some cointegrated series within the models. The result revealed among others that minimum wage legislation had a negative (-0. 707718) and insignificant ( 0.8966) relationship with the inflation rate. Results also indicated that minimum wage had a positive (0.155680) and significant (0.0350) relationship with private consumption but the effect of minimum wage is negative (- 0.659084 ) and insignificant (0.2044) on fiscal balance and finally it was found that minimum wage had a negative (-0.116879) but insignificant (0.0654) relationship with productivity index. Following the findings, it is therefore recommended that policies be designed to increase minimum wage even further especially because it will increase welfare and consequently private consumption generally without increasing inflation. Further research on some area of the study were also suggested.