ANALYSIS OF TRADE UNIONISM AND WAGE DETERMINATION IN NIGERIA

ABSTRACT

The purpose of this research work was to investigate the statement that workers who are unionized significantly earn higher wages than workers that are not unionized. It also assesses what factors encourage workers’ unionism. Union – nonunion wage differential (wage gap) and Oaxaca-Blinder decomposition technique were employed for the analysis while also controlling for selectivity bias by applying Heckman sample selection correction method. The result showed that the mere presence of unions affects the general wage level, thus a significant difference in the wages between union workers and non-union workers. It also showed that the differences in wages within union workers is mostly attributable to their endowment effect (human capital) and the workers’ area of employment. In conclusion, it becomes evident that unions helps in improving the welfare of union workers and consequently the economy. However union activities and demands may be harmful to the growth of the economy when union actions become protracted, and when their activities are not monitored. Therefore, the government does not need to stifle unions but encourage them, monitor them and regulate their activities to ensure that union goals are properly channeled for the benefit of all.

TABLE OF CONTENT

Cover Page ……………………………………………………………………………         i

Title Page ……………………………………………………………………………..         ii

Certification Page …………………………………………………………………….         iii

Approval Page ………………………………………………………………………..         iv

Dedication …………………………………………………………………………….        v

Acknowledgement ……………………………………………………………………         vi

Abstract ……………………………………………………………………………….        vii

Table of Contents ……………………………………………………………………..         viii

List of Figures ………………………………………………………………………..          x

Appendices …………………………………………………………………………..          x

CHAPTER ONE: INTRODUCTION

1. Background of the Study …………………………………………………………        1
2.  Statement of the Problem ……………………………………………..         3
3. Research Question …………………………………………………..        5
4. Research Objectives ………………………………………………………………         5
5. Research Hypotheses ……………………………………………………………..         6
6. Significance of the Study ………………………………………………………..         6
7. Scope of the Study ……………………………………………………………….         6

CHAPTER TWO: LITERATURE REVIEW

2.1 Conceptual Framework ………………………………………………………….           7

2.1.1 Trade Union ……………………………………………………………………          7

2.1.2 Wage Determination ……………………………………………………………          10

2.1.3 Factors that Determine Wage Rate ……………………………… …        10

2.2 Theoretical Literature ……………………………………………………………           12

2.2.1 Theories of Wage Determination ……………………………………           12

2.2.2 Factors that Determine Unionization Level ……………..            13

2.3 History of Trade Unionism in Nigeria …………………..           14

2.4 Wage Determination in Nigeria ………………………………………           16

2.5 Empirical literature ………………………………………………………………           18

2.5.1 Union-Wage Effect ……………………………………………………………           18

2.5.2 Non-Wage Effect of Unions …………………………………………………..           21

2.6 Empirical Evidence ………………………………………………………………          22

2.7 Limitation of Previous Studies …………………………………..          25

CHAPTER THREE:  METHODOLOGY

3.1 Theoretical Framework …………………………………………………………            27

3.2 Model Specification …………………………………………………………….            27

3.2.1 The Wage Equation ………………………………………………………….. …         28

3.2.2 Oaxaca Decomposition of the Wage Gap …………………… …        28       

3.3 Justification of the Estimation Technique …………………..  …        29       

3.4 Sources of Data ………………………………………………………………….          29

CHAPTER FOUR: RESULT PRESENTATION AND ANALYSIS

4.1 Data Overview …………………………………………………………………..           30

4.2 Analysis ………………………………………………………………………….           31

4.3 Results ……………………………………………………………………………         32

4.4 Evaluation of Working Hypothesis …………………………………..            35

CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION

5.1 Summary ………………………………………………………………………..            36

5.2 Recommendation ……………………………………………………………….            37

5.3 Conclusion ………………………………………………………………………..          38

References ……………………………………………………………………………         39

LIST OF FIGURES

Figure 1: Wage comparison among Sub-Saharan African Countries   3         

APPENDICES

Appendix 1: Civil Service and Wage Commission in Nigeria (1934-2010) ………..       44

CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY

Nigeria is a resource-rich country with a fast growing economy that has recorded growth in Gross Domestic Product (GDP) of over 7 per cent per annum in the past decade. However, this growth has neither generated employment nor translated into poverty reduction nor addressed inequality in the country. In fact, studies have mostly shown negative indicators on the general wellbeing of the Nigerian worker and people in the last decade. The proportion of people living below the national poverty line has worsened from 65.5 per cent in 1996 to 69.0 per cent in 2010. Inequality rose from 0.429 in 2004 to 0.447 in 2010 as measured by Gini coefficient. Unemployment rate is also increasing in an alarming rate; 21 per cent in 2010 to 24 per cent in 2011. In a nutshell, the overall economic improvements in the country’s Gross Domestic Product have not translated into improvements in the welfare of the average Nigerian worker (Nigeria-African Economic Outlook, 2013).

 Among the negative indicators is the average Nigerian worker’s remuneration level. Despite the stable economic indices recorded in Nigeria, particularly through the global economic crises, the average Nigerian worker ranks among the lowest paid globally. The Global Wage Report revealed that the average wage growth rate has remained far below pre-crisis levels globally. The global average wage growth rate only started to grow at 0.2 per cent in 2011, after a steady decline to 1.3 per cent in 2010 from 2.3 per cent in 2007 that marked the year of global economic crisis. The Nigeria economy surprisingly was reported to have done fairly well during the crisis period when most economies crumbled (Nigeria Economy Review, 2010). According to Nigeria Labour Congress (2009), Nigerian workers are among the least paid when compared to other countries in Sub-Saharan Africa (SSA), despite the country’s huge earnings from crude oil. A Nigerian worker earns on average of 550 dollars per annum, only above countries like Madagascar, Democratic republic of Congo and Malawi, whereas, the minimum wage of a worker in Botswana is five times more than that of a Nigerian worker (see Fig. 1).

The deplorable state of Nigerian workers is further aggravated by the huge disparity between the average workers’ salaries and political office holders. Between 2006 and 2007, workers’ salaries increased by less than 40 per cent while those of political office holders increased by over 800 per cent. For instance, the salary of the Chief Speech Writer to the President increased from N626, 700 to N4, 392,012. The salary of the members of the House of Representatives increased from N865, 200 to N13, 202,402. Whereas the difference between managers and workers is not only one of the highest in the world, out of every N1 paid as wages, managers collect more than 80 kobo while workers receive less than 20 kobo with the difference increasing over the years (NLC, 2009). In the face of increasing inflation of about 14 per cent, the salary of a Nigerian worker is barely enough to meet basic needs, with the situation made worse by the fact that those working also have to support family members who form part of the huge army of unemployed in the country (Agba and Ushie, 2013).

In order to defend their rights and fight unjust exploitation, Nigerian workers have resorted to engage in trade unionism which provides a collective platform to voice out their frustrations.  Workers have rights under the International Labour Organization (ILO) conventions of 1987 and 1998 to join with unions and collectively bargain their employment contract. These unions engage in the struggle for the rights and welfare of members especially for decent wages and improved working condition. Where negotiations fail to achieve the desired result, unions are noted to resort to industrial actions such as strike, work-to-rule, demonstrations and street protest – which are capable of not only halting production process but sometimes and more crucially, the economy (Tar, 2009).  Nigerian Trade Union movement comprises a variety of unions that represent the interest of their members that all come under the umbrella of Nigeria Labour Congress (NLC). The collective strength offered by the unions presents a good avenue for workers to press home their demands. This is largely so because trade unions are officially recognized as the representative of their members. Without unions and the collective platform to present their common interest, employees become vulnerable while employers assume unilateral management of work and negotiation of salaries. This, according to Dunlop (1958) will distort the tripartite system of industrial relations that involves the employers (represented by management), employees (represented by the trade union) and the Government.

Nigeria, like other developing economies, employs two methods of fixing wages. The first being a centralized government regulated system based on statutory laws, administrative decrees and compulsory arbitration. The second is collective bargaining as represented by trade unions with limited legal interventions as practiced in other developed countries like North America (Dunlop, 1958). It’s argued that centralized wage determination is more beneficial to developing countries due to the vulnerable nature of their economies. The reason put forward is that trade unions through collective bargaining negotiate for wages that are ‘too high’ thereby eroding competitiveness in the international market. Secondly, trade union’s bargain leads to inequitable distribution of income leading to widening wage disparities among workers. Also the process of their bargaining permits open industrial conflict that results in loss of output which these economies cannot afford and which discourages foreign investment. One major characteristic of industrial relations in Nigeria from early 1940s with respect to wages is the use of commissions by the Government as a vehicle for all major wages and salaries review, which acts as a barometer for others to follow. See Appendix 1

Anyim et al (2012), identified three levels in Nigeria’s industrial relation by which wages and salaries are fixed. The first is Joint Consultation/Single Employer Bargaining (JCC). This involves management and worker’s representatives of a single company, organization or government parastatal. These parties discuss and agree on matters of mutual interest at the unit or grass root level between the management and workers’ representatives. The second is Industry-Wide or Multi-Employer Bargaining which involves negotiation between representative of employers (Employers Association) and representatives of workers (Trade unions) belonging to the same industry. A good example is the negotiation between Nigeria Employers Association of Banks, Insurance and Allied Institutions (NEABIAI) and National Union of Banks, Insurance and Financial Institutions Employees (NUBIFIE) for junior employees and Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI) for senior staff in the banking industry. The third level is the National or Tripartite Bargaining involving the three actors in industrial relations-government, labour union and management representatives. The essence of bargaining at this level is to lay down guidelines and standards guiding all private and public sector establishments in the nation. A good instance for organizations in Nigeria is the National Minimum Wage Act.  

Figure 1: Wage comparison among Sub-Saharan African Countries

1. STATEMENT OF PROBLEM