Minimum Wage Policy and Rural Household Welfare in Nigeria

Using the Computable General Equilibrium (CGE) framework, this paper showed how urban sector wage rigidities such as the minimum wage policy can impact the rural economy and the welfare of households. A static CGE model of the Nigerian economy was developed to examine the effects of 12%, 30% and 68% minimum wage increases in Nigeria on the economy and the welfare of households, especially informal sector rural households. CGE simulations revealed that with a 12% increase in the minimum wage, domestic output declined in all sectors except the crude oil and mining sector. Similar impacts were observed with 30% and 68% increases but with greater changes. There was also a general decline in labour employment due to its higher price. Most macroeconomic aggregates fell, including GDP and real GDP. Household savings, however, increased in all cases but there were huge inflationary pressures represented by increases in the price index in all three scenarios. Investments also fell, while household utility declined in all three scenarios, indicating that minimum wage policies in the long run, do not result in better household welfare, rather they are left worse off. Acknowledgement : I would like to acknowledge the support of the The Biomass Web Project of the University of Bonn, Germany in collaboration with the German Federal Ministry of Education in completing this research work