CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Income policy is typically made use of as a primary element of welfare boosting and poverty reduction in the macroeconomic policy structure in Nigeria. Minimum wage (hereafter MW) regulation is a significant income policy reality employed here. Although salary increase or minimum wage policy has both unfavorable and favorable impacts on the general economy; policy makers particularly political leaders, have used it more frequently for political purposes than for socio-economic reasons. Minimum wage legislations in the nation have been preceded by high inflation rates that erode the purchasing power and bring reduction in well-being (Adams, 1987). As a result, the need for minimum wage regulations, which typically results in an increase in nominal wage, is justified as a way of adjusting salaries and incomes to suit the rise in cost of living. It is nevertheless noteworthy that salary increase brought about by minimum wage is typically counter-productive.
Aside from bring about an increase in general price level salary increases are constantly complied with by risk of reduction in government workforce, and sometimes, such risks have resulted into huge laid-off in the public service (Olaleye, 1974; Owoye, 1994). Likewise, salary increases in Nigeria do not match up with the rate of increase in price. Consequently, there are constantly agitations from the labour union for consistent wages and salaries increase. This regular call for increase in salaries is sometimes based on the broad gap between public sectors and private sectors salaries. The gap between public sectors and private sectors salaries has usually been given as one factor for the inefficiency and corruption in the public sector. It is suggested that public sector employees are worthy of sufficient compensation commensurate with their labour, in other to bring about efficiency (Obasanjo, 1999).
The Nigerian economy is a middle-income economy arising market with well-developed monetary, lawful, communication, transported entertainment sectors. It is placed 31st worldwide in regards to gross domestic product (GDP) as 2009 and its emergent through currently under performing manufacturing industries is the 2nd biggest on the continent, for the west African region scholars have defined the Nigerian economy to be connected with a high cost of living putting it in words, (Ekan 1998) specifies that Nigerian economy is defined by high cost of living which is resultant impact of the persistent increase in the general price level in the economy. In an effort to solve the issue of low standard of living, government expenditure has been on the continual increased which is partly triggered by trade unions agitations and partially by continuous increase in prices of goods and services in the product and factors markets in the product.
Since the independence the country's recurrent expenditure has been on the increase in 1970 overall recurrent expenditure stood at two thousand, seven hundred- and thirty-four-naira, ninety kobo in 1980 when the economy was on a consistent growth our recurrent expenditure stood at four thousand eight hundred and twenty kobo in 1986 when SAP (structural adjustment programme) was introduced it.
Stood at seven thousand, six hundred and ninety-nine kobo. The increase in the country's recurrent expenditure was required by the need to create employment and enhance money supply to suit the output level (NBS, 2009).
Nevertheless, the buying power of the average Nigerian was reducing due to the increase in price level in the economy. In an effort to address this issue, different perspective and yearly strategies have been developed and executed. Instances are the vision 2020, vision 2010, and Yaradua's 7 points agenda, Millennium development goals and 2013 budget by Goodluck Jonathan.
The issue of inflation is a nationwide headache to economic growth and development. It must be kept in mind that it cannot be eliminated absolutely. In a real sense, inflation rate can just be reduced to manageable limit. It ought to likewise be noted that inflation is not faced by less developed nations alone however the Western nations are likewise dealing with the issue.
For Nigeria, as the general price degree is on the increase so is the recurrent expenditure which has produced the inflationary gap in the economy (Wahab, 2004). This study is examining the effect of salary increase on inflation in Nigeria.
1.2 Statement of the Problem
The issues that occur when salaries are increased are raising labour costs which consequently result in cost push inflation. As employees need wage increases, firms typically decide to pass on those costs to their clients via price increases, therefore creating inflation that is where prices are forced upwards due to the fact that people have a lot money with them. It enhances aggregate demand.
Likewise, salaries increase brings about retrenchment of employees therefore triggering inflation has remarkable effect on the output and employment decision by companies since inflation distorts the price system by making it challenging to differentiate changes in the general prices level, it creates uncertainty making the investors much less ready to take risks and invest particularly in long-term project, inflation push up real interest rates as creditor need a bigger risk premium on their money. This study as a result aims at examining the effect of salary increase on inflation in the Nigeria economy. For the purpose of this study the salary increases as represented with federal government recurrent expenditure leaving out social service, economic service, transfers. If government wishes to solve the issues of inflation it will end up creating unemployment. Therefore, different economics theorists have theorized about the connection between salary increase and inflation hence giving rise to the theories, causes and impacts of inflation.
1.3 Objectives of the Study
The main objective of this study is to assess the effect of salary increment on inflation in Nigeria. Therefore, the followings are the specific objectives:
a) To understand the trend of inflation in Nigeria over the years.
b) To examine the influence of salary increase and fringe benefits among Nigerian workers
c) To determine the relationship between inflation and salary increase
d) To study the effect of salary increase on the inflation rate on the price of goods and services
1.4 Research Questions
This study shall answer the following questions:
a) What is the trend of inflation in Nigeria over the years?
b) What is the influence of salary increase and fringe benefits among Nigerian workers?
c) What is the relationship between inflation and salary increase?
d) What is the effect of salary increase on the inflation rate on the price of goods and services?
1.5 Research Hypotheses
This study will be guided by the following hypotheses:
a) There is a significant relationship between inflation and salary increase
b) There is no significant effect of salary increase on the inflation rate on the price of goods and services
1.6 Significance of the Study
This study will be beneficial to the government and Nigerians as a whole, on the implication of salary increase on the Nigerian economy. Also, it will benefit to policy makers in the economy to aid them formulate sound economic policy that will keep inflation at the barest minimum in the economy. The study is also important to other researchers in this field as a reference material to aid them in their own research that are yet to be conducted.
1.7 Scope of the Study
This study is on the effect of salary increment on inflation in Nigeria and therefore, it will cover government employees alone because they dominate the labor force in the country. Data collected from a secondary source ranged between 2010 to 2020 will be considered appropriate for this study.
1.8 Limitations of the Study
This study has its limitations, which include;
There are very limited materials for the research. This is because few authors have thought on this issue.
The unfriendly attitude of staff of various ministries and companies where I went to collect materials because of secrecy and other reason like money.
Difficulties in collecting data relating to my project. Due to not enough information was available. After all the difficulties I still got few materials that will help enrich my project.
1.9 Definition of Terms
The following terms were used in the process of carrying out tis study
Salary: Salary can be defined as a fixed payment at regular interval for service. It is a payment made to workers for service rendered.
Wages: Wages are payment received from becomes obvious that man has to labour himself to the point of satisfaction in order to meet up with the necessities of his life either in private or public sector as the case of railway corporation is concerned
Public Sector: Public sectors are those infrastructural organizations fundamental to the natural economy, which the government decided to control in order to ensure a proper balance between social and commercial aims.
Inflation: is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
