Poverty Effects of Minimum Wage Increase in Nigeria

Abstract

This paper examined the influence of Minimum wage (MW) increase on poverty level of households whose heads were in formal employment and the spillover effect on those in informal employment. It assessed distribution of real per capita household expenditure (PCPHE) and real monthly wage of workers in the two sectors. Fuzzy set approach was used to estimate multidimensional poverty (MDP) index of the population which served as poverty line and the poverty rate of households which was utilized as regressand in Instrumental Variable (IV) regression, with real monthly wage as key regressor. The study also estimated MW coverage and percentage of low-wage earners in poor and non-poor households. The results showed that PCPHE did not reflect wage gains observed after MW increase in the sectors but there was slight reduction in poverty level. Formal sector workers were poorer than those in informal sector and poverty worsened for public sector employees after MW increase compared to employees in private sector. The implication of the result is that MW should not be the sole redistributive policy in the formal sector and its increase should only form part of a comprehensive national economic development strategy.

Keywords: Employment, fuzzy set, instrumental variable, minimum wage, multidimensional poverty.

DOI: 10.7176/DCS/9-11-03

Publication date: November 30^th 2019