Macroeconomic Effect of Minimum Wage Increase in Nigeria: A DSGE Approach
- Philip O. Alege
- Queen-Esther Oye
- Adeyemi Ogundipe
- Omobola Adu
- ( paper pages. 271 - 299 )
Abstract
The minimum wage is an economic policy tool aimed at raising the earnings of low-income households with the ultimate objective of improving the living standard of this group of workers. Nigeria has, over time, enacted four national minimum wage acts. The mostrecent is the Minimum Wage Repeal and Enactment Act 2019, which has increased the minimum payment to workers from N18,000 to N30,000; representing a rise of about 66.67 per cent. The implementation of this new bill is expected to have varying macroeconomic effects ranging from wage effects, employment effects, distributional effects, welfare effects and price effects, among others. This study, therefore examined the macroeconomic effects of the four episodes of minimum wage increases in Nigeriaby calibrating and log-linearising a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model that is extended to include labour heterogeneity. The study found that minimum wage increase does not improve household welfare and living standard,neither does it have any positive growth effect. Furthermore, it strains government finances. The implication of this finding is that minimum wage policy should be complemented with other pro-poor and inclusive development policies in order to improve the quality of life of the poor and vulnerable low-income workers.
Citation
Philip O. Alege, Queen-Esther Oye, Adeyemi Ogundipe, Omobola Adu.
2021.
"Macroeconomic Effect of Minimum Wage Increase in Nigeria: A DSGE Approach"
The Nigerian Journal of Economic and Social Studies,
63 (2): 271 - 299.
JEL Classification
E24, E65, J31, C63
