Macroeconomic and Household Welfare Impact of Increase in Minimum Wage in Nigeria: A Computable General Equilibrium Model

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1 Amerian Journal of Eonomis 2017, 7(5): DOI: /j.eonomis Maroeonomi and Houseold Welfare Impat of Inrease in Minimum Wage in Nigeria: A Computable General Equilibrium Model Pilip Teremen Abai *, Paul Teremba Iorember Department of Eonomis, Benue State University, Makurdi, Nigeria Abstrat Given te down turn of eonomi ativities in Nigeria and te agitation for minimum wage inrease, tis study investigated te impat tat inreases in minimum wage will ave on ouseolds welfare in Nigeria using a Computable General Equilibrium Model. Te study formulated two senarios inrease in minimum wage of workers by 211% and 150%, being inrease from N18,000 to N56,000 and from N18,000 to N45,000 respetively. Te data used for te study is a reformatted Soial Aounting Matrix for Nigeria. Te simulation results of senario one revealed tat, a 211% inrease in te minimum wage of workers will inrease agriultural output, industrial output and exports wile imports will be depressed marginally and ten lead to inrease in ouseolds welfare indiators of inome, onsumption and savings by 6.76%, 5.0% and 3.61% respetively. Te result of senario two revealed tat, inreasing minimum wage by 150% will lead to inrease in agriultural output, industrial output and exports wile imports will fall and ten ouseolds welfare indiators of inome, onsumption and savings will inrease by 5.75%, 4.83% and 2.96% respetively. Similarly, te study found tat, te Hiksian Equivalent variation as a measure of welfare impat of te poliy is positive and ig in all te simulations. Te study onluded tat an inrease in minimum wage of workers as positive and signifiant impat on ouseold welfare in Nigeria. Terefore, it is reommended among oters tat te government sould as a matter of urgeny aede to te demand of te organized labour and inrease te minimum wage of workers from N18,000 to N56,000 (211% inrease) and ensure tat it is fully implemented aross board. Keywords Minimum Wage, Houseold Welfare and Computable General Equilibrium 1. Introdution Te global debate on te oie of an appropriate inome poliy as a response to inflation and a tool for boosting ouseold welfare, reduing poverty and ensuring maroeonomi stability as been anging profoundly between minimum wage legislation and prie ontrol meanisms. However, te fous of tis study is on minimum wage rater tan prie ontrol due to te fat tat, te Nigerian eonomy is largely market driven and pries of goods and servies are determined by te market fores. Proponents of minimum wage inreases su as Fanti and Gori (2011) and Watanabe (2013) ave argued tat inreases in minimum wages serve as engine of maroeonomi growt, assist low-skilled individuals during downturns in te business yle, redue inome inequality and redue poverty. Samuel (2015) noted tat, te main idea of fixing minimum wages is to ensure tat low-wage-low-skill * Corresponding autor: abaipilip13@gmail.om (Pilip Teremen Abai) Publised online at ttp://journal.sapub.org/eonomis Copyrigt 2017 Sientifi & Aademi Publising. All Rigts Reserved workers earn deent wages from teir jobs. Moreover, it an pull ouseolds tat are below te poverty line to somewere above te poverty line sine it raises ouseold inome. In addition, it reates and sustains at least, a subsistene standard of living for poor and low-skilled workers. However, a review of te literature provides little empirial support for tese laims. Minimum wage inreases redistribute gross domesti produt away from lower-skilled industries and toward iger-skilled industries and are largely ineffetive in assisting te poor during bot peaks and trougs in te business yle (Sabia, 2014). Card and Krueger (1995) opined tat, minimum wage inreases may not be te most effiient way to aieve poverty redution and improve ouseold welfare. Tis is beause, wile inreases in minimum wages redue poverty levels, tey also lead to iger levels of unemployment. Speifially, te ategory of workers most likely to suffer from minimum wage inreases is low-skilled workers. Su workers are easily substituted for ig-skilled workers. Unemployment inreases most amongst tem. Tis is worsened by te fat tat jobs tat require low skills and tose tat pay low wages are te most likely to deline wen minimum wages inrease

2 250 Pilip Teremen Abai et al.: Maroeonomi and Houseold Welfare Impat of Inrease in Minimum Wage in Nigeria: A Computable General Equilibrium Model (Neumark, 2014). Terefore, as far as effiieny is onerned, te ability of minimum wages to redue poverty and improve ouseold welfare is not ostless (Lustig and MLeod, 1996). Similarly, Folawewo (2007) noted tat wage inrease brougt about by minimum wage inreases is usually ounter-produtive. Apart from leading to a rise in general prie level, wage inreases, are always followed by treat of redution in government workfore, and in some ases, su treats ave resulted into massive laid-off in te ivil servie (Olaleye, 1974; Owoye, 1994). Also, wage inreases in Nigeria do not mat up wit te rate of inrease in pries. As a result, tere are always agitations from te labour unions for persistent wages and salaries inrease as it is te ase in Nigeria presently. Aside te divergent findings about te poverty redution and maroeonomi effets of minimum wage inreases in an eonomy, te ouseold welfare effet of te inome poliy (minimum wage inreases) as reeived little attention in literature espeially for Nigeria. More so, most of te studies reviewed in tis paper ave used partial analysis in analyzing speifi eonomi effets of te inome poliy in an eonomy rater tan general equilibrium analysis wi aording to Adams (1987) is most appropriate in analyzing maroeonomi effet of an eonomi poliy. Tis study terefore analyses te impat tat different levels of inreases in minimum wage will ave on maroeonomi variables of agriultural output, manufaturing output, export and import pries and on ouseold welfare indiators of inome, onsumption and savings in Nigeria using Computable General Equilibrium model. Te study is signifiant beause it is one of te few studies on te effet of minimum wage in Nigeria tat adopts Computable General Equilibrium approa and is oming up at te time wen agitations for inrease in minimum wage is palpable in Nigeria. Hene, te study is not only timely but also ontributory to te existing body of literature on bot minimum wage and Computable General Equilibrium model. Te findings of te study will provide insigt and understanding to te government and poliy makers on te impat of inrease minimum wage on bot maroeonomi variables and ouseold welfare indiators. Terefore, te study an be said to be of immense benefit to te poliy makers and eonomi planners in terms of using its findings in formulating and implementing appropriate poliy measures towards aelerating eonomi growt and improving living onditions of te people. 2. Empirial Review Several studies ave investigated te impat of minimum wage on different aspets of te eonomy using varying metodologies. Mwangi, Simiyu and Onderi (2015) analysed te effets of minimum wage on te labour market and inome distribution in Kenya using CGE. Te study found a positive effet of minimum wage inrease on ouseold inome and onsumption, as well as government inome. However te fous of te study was on inome distribution rater tan welfare. Also Erero (2016) used CGE model to investigate te effet of minimum wage in Sout Afria and found tat an inrease in te national minimum wage as a negative and distortive impat on te reported maro-eonomi variables. Tis is partiularly seen by a deline in GDP, employment and welfare. Tese findings as it were are not based on Nigerian data and te failure to disaggregate welfare into inome, onsumption and savings does not expliitly apture te ouseold impat. Adams (1987) used maroeonometri model to simulate te effet of anges in minimum wage on eonomi variables and found mixed outomes; wile it affets unemployment positively, it as negative effet on real wage and real gross national produt. Te study did not evaluate te ouseold welfare effet of te poliy. In Nigeria, Falawewo (2007) used Computable General Equilibrium model to analysed te effet of minimum wage poliy in Nigeria. Te study found tat inrease in minimum wage ad a positive effet on te eonomy but ould not inlude ouseold savings wi is also a major omponent of ouseold welfare. Atseye, Takon and Ogar (2014) and Nwoke (2017) used partial equilibrium models to examine te impat of minimum wage on te Nigerian eonomy. Te studies found positive effets on te eonomy but ould not utilized te CGE model to address te eonomy-wide effet of te poliy options. Akpansung (2014) investigated te effet of minimum wage inrease on unemployment during demorati era using least squares and granger ausality teniques. Te study found tat inreases in minimum wage leads to inrease in unemployment levels. No attention was given to welfare effet of te poliy. 3. Teoretial Framework Utility Teory and General Equilibrium Teory Tis study is anored on two teories: te Utility Teory and te General Equilibrium teory. Te utility teory as espoused by Gossen (1854), Walras (1874), Marsall (1890) and Hiks and Allen (1939) posit tat a onsumer is assumed to be rational. Given is inome and market pries of various ommodities, e plans te spending of is inome so as to attain igest possible satisfation or utility. On te oter and, te general equilibrium teory developed by Arrow, Debreu and MKenzie in te 1950s seeks to explain a situation were all pries are in equilibrium; ea onsumer spends is given inome in a manner tat yields im te maximum satisfation. Tus, te eonomy is in general equilibrium wen ommodity pries make ea demand equal to its supply and fator pries make te demand for ea fator equal to its supply so tat all produt markets and fator markets are simultaneously in equilibrium. Tis equilibrium position is sensitive to government intervention troug te instrumentality of te minimum wage variation. Te teoretial underpinning of welfare impat of an

3 Amerian Journal of Eonomis 2017, 7(5): eonomi poliy su as inrease in minimum wage is found in te utility teory. Te teory posits tat a onsumer is assumed to be rational and terefore spends is inome in a way tat gives im igest welfare. Te general equilibrium teory on te oter and seeks to explain a situation were bot ommodity pries and fator pries are simultaneously in equilibrium in te various markets. Wile te utility teory is useful in te estimation of te welfare impat of te poliy ange, te general equilibrium teory on te oter and addressed te eonomy-wide perspetive of te study and as well formed te bedrok for te metodology of te study. 4. Metodology Te appropriate metodology to apture te maroeonomi and welfare impat of an inome poliy su as inrease in minimum wage is te Computable General Equilibrium model (CGE). Te CGE model belongs to a ategory of multisetoral models. It is useful in arrying out eonomy-wide impat of speifi poliies (Adenikinju, Falokun, Aminu and Fowowe, 2012). Te oie of CGE model for tis study is based on a number of reasons; first, given tat an inrease in minimum wage will ave eonomy-wide effets on te Nigeria eonomy, CGE provides a framework for apturing su effets. Seond, CGE models are also adept in addressing issues of optimization and in tis ase, utility optimization. CGE provides tools tat an be relied upon to arry out su optimization exerise (Adenikinju et al, 2012). Also, te appropriateness of CGE model for tis study is defined by te temporal struture (essentially stati analysis) and te nature of data employed. Model Speifiation and Disussion Te CGE model used in tis study follows losely tat of Lofgren, Harris and Robinson (2002) model wi was also used by Anuwat (2010). Te funtions used are onstant elastiity of substitution (CES) of bot te Cobb- Douglas and te Leontief types. Te struture of te model is divided into four major bloks: prodution and trade; prie; institutions and system onstraint bloks. Te oie of tese bloks is based on te maroeonomi nature of te study. Prodution and Trade blok In tis blok, it is assumed tat ea produer maximizes profits subjet to its prodution funtion, wi uses te Cobb-Douglas prodution tenology. Tere are two primary inputs: apital and labour wi are influened by inreases in wages. Terefore, te ativity prodution funtion an be expressed as; QA ad QF, A (1) fa a a fa f F Were QA a is te ativity level, QF fa quantity demanded of fator a from ativity a, fa is te prodution funtion sare parameter or value-added sare for fator f in ativity a and ad is te prodution effiient parameter. Prie Blok a In te prie blok, domesti import prie of ommodity in equation 2 is te produt of world import prie ( pwm ), te tariff adjustment (1 tm ) and exange rate (EXR) plus transation osts to move te ommodity from te border to te domesti demander. PM pwm (1 tm ) EXR PQ im, CT CM (2) Were PM is import prie in LCU (loal-urreny units) inluding transation osts, pwm is ost, insurane and freigt (.i.f.) import prie in FCU (foreign-urreny units), tm is import tariff rate, EXR is exange rate (LCU per FCU), PQ is omposite ommodity prie (inluding sales tax and transation osts), im is quantity of ommodity as trade input per imported unit of. Te export prie in LCU in equation 3 is te prie reeived by domesti produers wen tey sell teir output in export markets. Sine export prie is exogenously determined, inrease in minimum wage will likely inrease effetive domesti demand and redue te inentive to export. PE pwe (1 te ) EXR PQ ie, CT CE (3) Were PE is export prie in LCU (loal-urreny units), pwe is free on board (f.o.b.) export prie in FCU (foreign-urreny units), te is export tax rate. Te absorption for ea ommodity is te total domesti spending on ommodities at domesti pries (PQ QQ ). It an be expressed as te spending on domesti outputs (PD QD ) plus imports (PM QM ) inluding an upward adjustment for sales tax as sown in equation 12. Terefore, te omposite prie (PQ ) an be derived by dividing equation 4 by te omposite supply (QQ ). Inrease in minimum wage will influene ouseold spending beaviour. PQ QQ PD QD ( PM QM ) (1 tq ), / CM C (4) Were QQ is quantity of goods supplied to domesti market (omposite supply), QD is quantity sold domestially of domesti output, QM is quantity of imports of ommodity, and td is rate of sales tax (as sare of omposite prie inlusive of tax). Domesti output value at te produer prie (PX QX ) is te value of domesti sales (PD QD ) plus te export value

4 252 Pilip Teremen Abai et al.: Maroeonomi and Houseold Welfare Impat of Inrease in Minimum Wage in Nigeria: A Computable General Equilibrium Model (PE QE ). Tis an be expressed as equation 5. Te produer prie (PX ) is derived by dividing equation 5 by te domesti output (QX ). Inreases in minimum wage will likely affet domesti output given tat, te volume of domesti sales will rise due to te anges in te purasing power of te ouseolds. PX QX PD QD ( PE QE ) / CE, C(5) Were PX is aggregate produer prie for ommodity, QX is aggregate marketed quantity of domesti output of ommodity and QE is quantity of exports. Equation 6 desribes ativity prie (PA a ), wi is te sum of produer prie times te yields of ommodities. Similarly, ativity prie defined as gross revenue per ativity unit is affeted by inrease in output yield due to inrease in minimum wage. PAa PXACa a, a A (6) Were PA a is ativity prie (gross revenue per ativity unit), PXAC a is produer prie of ommodity for ativity a, and a is yield of output per unit of ativity. Equation 7 desribes, te value-added prie, defined as te ativity prie minus te value added tax and input ost per ativity unit. PVAa PAa (1 tiaa ) PQ iaa, A (7) C Were PVA a is value-added prie, tia a is value added tax rate (indiret tax) PQ is omposite prie and is input per ativity unit. Institution Blok ia a Equation 8 defines te inome of fator f (YF f ) (apital and labour) as equal to te sum of te average fator pries (WF f ) multiplied by te quantity demanded of fator f (QF fa ) wit distortion wage (WFDIST fa ). Tis fator inome is split among domesti institutions after payment of diret fator tax and transfers to te rest of te world. Labour inome belongs to ouseolds inform of wages wereas apital inome is subtrated from te payment of tax on apital before flowing to ouseold and enterprise. Canges in minimum wage will affet total fator inome. YFf WFf WFDIST faqff a, f F (8) aa Were YF f is total fator inome of fator f, WF f is ativity speifi wage, WFDIST is eld onstant wit te assumption tat, te inrease in minimum wage will not result to wage distortion and QF fa is employment level. Houseold inome is te sum of fator inomes, transfers and remittanes from abroad. Houseolds disposable inome is eiter saved or onsumed. Equation 9 defines ouseold onsumption expenditure as ouseold inome net of indiret taxes and savings. Inreasing minimum wage will likely affet ouseold onsumption eteris paribus. EH 1 sii (1 MPS ) (1 TINS ) YI iinsdng i Were, EH is ouseold onsumption expenditures, sii i is sare of net inome, i ( INSDNG ) is a set of ouseolds, TINS is diret tax rate for ouseolds, MPS represents marginal propensity to save for ouseold and YI i is te inome of institution i (in te set INSDNG). Equation 10 defines quantity demand for investment for ea ommodity. It multiplies base-year investment demand (qinv ) by investment adjustment fator (IADJ). QINV (9) IADJ qinv (10) Were, QINV denotes quantity of fixed investment demand for ommodity, IADJ denotes investment adjustment fator, and qinv denotes te base-year quantity of fixed investment demand. In terms of te government setor, its inome and expenditure are sown in equations 11 and 12 respetively. YG tap YFf ty YH tentent YENTent f F H entent ti ( PD QD ( PM QM ) ) C / CE tiaa ( PAa QAa ) tm EXR pwm QM aa C te EXR pwe QE EXR trnsfr gov, row CE EG PQ qp tr trnsfr EXR trnsfr, gov rnt, gov row, gov (12) C (11)

5 Amerian Journal of Eonomis 2017, 7(5): See Appendix A for definition of variables and parameters System Constraint Blok Te generations of fator inomes and payment of tese inomes to domesti institutions links prodution wit demand. Balane between demand and supply for bot ommodities and fators are needed in order for te model to rea equilibrium. Tis balane is imposed on te model troug a series of system onstraints (Turlow, 2004). Te standard CGE model defined tree maro-balanes: ommodity markets, fator markets and external balanes. Equations in tis blok define te system onstraints tat must be satisfied by te model. Commodity and fator markets are leared by te flexible pries wile urrent aount balane is leared by foreign exange rate. Te model satisfies Walras law. Terefore, te maro onstraint satisfies te identity in equation 16, wi means savings equal investment. Te equilibrium in te fator market is defined in equation 13, wi is te equality in total quantity demanded and supplied of te two fators (apital and labour). QFfaQFS f (13) aa Were QF fa is quantity demanded of fator f from ativity a and QFS is total quantity supplied of fator f. Similarly, equilibrium in te ommodity market expressed in equation 14 is te equality in omposite ommodity supply and demand., C QQ QINT QH qg QINV a aa H (14) Were QINT a is quantity of ommodity as intermediate input to ativity a, QH is quantity onsumed for ommodity by ouseold, qp is base-year quantity of government demand and QINV is quantity of investment demand for ommodity. Regarding te urrent aount balane (expressed in foreign urreny), te ountry s earnings equal its spending of foreign exange, wi is represented by equation 15. row f CM f F CE pwm QM trnsfr pwe QE trnsfr FSAV i row fator import transfer spending RoW institutional export foreign transfers revenue savings from RoW (15) Were FSAV is foreign savings (FCU) (exogenous variable). Anoter maro onstraint is te saving-investment balane as sown in equation 16. Total savings are te sum of savings from ouseolds, enterprises, government and te rest of te world. In ontrast, total investment is te sum of te value of domesti investment and foreign investment. Te WALRAS variable is introdued in tis equation in order to ek weter te saving-investment balane olds. If te model works, te value of WALRAS will be zero (Anuwat, 2010). H mps (1 ty ) (1 int ) YH ( YG EG) int, YENT entent ( tent YENT ) EXR tr EXR FSAV C ent ent ent row, ent PQ QINV EXR finv WALRAS (16) See Appendix A for definition of variables and parameters. Simulation Designs To aieve te objetive of tis study, a Computable General Equilibrium model was employed, alibrated on data from Soial Aounting Matrix (SAM) for Nigeria to simulate te impat of inreases in minimum wage on ouseold welfare and maroeonomi variables. Te senarios used in tis study represented exogenous ange in eonomi onditions and were ompared to a baseline senario wi assumes no speifi anges to poliy. Te two senarios ompared wit te baseline senario are: (i) 211% inrease in minimum wage of workers (inrease from 18,000 to 56,000) in line wit te demand of te organized labour and (ii) 150% inrease in minimum wage of workers (i.e inrease from 18,000 to 45,000). A position tat is favoured by te government and appears similar to te 2011 template tat inreased minimum wage by 150% (from 7,000 to te present 18,000). 5. Evaluation of Maroeonomi and Welfare Impat of te Minimum Wage Poliy Te maroeonomi variables or indiators of interest in tis study are agriultural output; industrial output; exports and imports. Te oie of tese variables is based on te sensitivity of te variables to te struture of te Nigerian eonomy. Te variables were seleted to aount for bot te aggregate domesti demand and urrent aount dynamis. On te side of welfare, Obi-Egbedi, Okoruwa, Aminu and Yusuf (2012) identified tree basi omponents/indiators of

6 254 Pilip Teremen Abai et al.: Maroeonomi and Houseold Welfare Impat of Inrease in Minimum Wage in Nigeria: A Computable General Equilibrium Model ouseold welfare namely; ouseolds onsumption, inome and savings. To evaluate te impliations of te minimum wage poliy options on ouseold welfare in Nigeria, te Hiksian Equivalent Variation was estimated by alulating welfare gains/losses from simulation results. Following Olopoenia and Aminu (2007), Annabi, Kondker, Raian, Cokburn and Dealuwe (2006) and Devarajan, Tienfelder and Sutiiwart (2001). Te Hiksian Equivalent Variation (EV) is given by EV Un U Uo o Y o (17) Were Y o is te inome of ouseold before te poliy ange, U o is te utility of ouseold before te poliy ange, U n is te utility of ouseold after te poliy ange and EV is te Equivalent Variation of a ouseold. A poliy is said to ave impat on ouseolds if te alulated value of te equivalent variation is greater tan zero (i.e, if EV > 0). Te greater te value of te equivalent variation, te more impatful te poliy is to te ouseolds. 6. Data Soures Te main soure of data for tis paper is te updated Soial Aounting Matrix (SAM) onstruted from (i) 2006 SAM wi is te most reent for Nigeria (ii) Setoral output data for year 2015 reported by te Central Bank of Nigeria (2015) (iii) Year 2015 ouseolds inome and expenditure data for Nigeria reported by te National Bureau of Statistis (NBS) (2015) and te CBN (2015). Te 2006 Nigeria SAM was built for te dynami CGE (DCGE) tat examined te agriultural growt and investment options for poverty redution in Nigeria. It omprises 61 setors/ativities out of wi 34 are under agriulture and 12 under manufaturing; 12 ouseold groups and 3 fators of prodution. It also inludes an aount for government and te rest of te world (Nwafor, Diao and Alpuerto, 2010). However, to aieve te objetives of te study, tese setors (Agriulture and Industrial) and te ouseold groups are aggregated to onstrut te SAM Table. 7. Estimation and Analysis of Result Te simulation results of te two senarios is presented in Tables 1 and 2 respetively. Result in Table 1 sows tat, te maroeonomi variables of agriultural output, industrial output and export will inrease by 4.13%, 3.65% and 7.12% respetively wile imports will redue marginally by 1.05%. Tis ange will lead to a single digit inrease in all te ouseold welfare indies of inome, onsumption and savings. Houseolds inome, onsumption and savings will inrease by 6.76%; 5.0% and 3.61% respetively. Also, te result of te simulation sows tat ouseolds onsumption of domesti goods will inrease by 5.41% wile ouseolds onsumption of imported goods on te oter and will depress -0.41% ange. Tis indiates tat inrease in minimum wage will drive onsumption of domesti goods. Te Hiksian Equivalent Variation is wi sows tat, welfare of ouseolds will be better off if te minimum wage of workers is inreased from N18,000 minimum to N56,000 (i.e 211% inrease). Result in Table 2 sows tat, te maroeonomi variables of agriultural output, industrial output and export will inrease by 3.52%, 3.70% and 5.31% respetively wile imports will marginally depress by 1.18%. Tis ange will lead to a single digit inrease in all te ouseold welfare indies of inome, onsumption and savings. Houseolds inome, onsumption and savings will inrease by 5.75%; 4.83% and 2.96% respetively. Also, te result of te simulation sows tat ouseolds onsumption of domesti goods will inrease by 5.11% wile ouseolds onsumption of imported goods on te oter and will depress 0.28% ange. Tis indiates tat inrease in minimum wage will enourage onsumption of domesti goods. Te Hiksian Equivalent Variation of sows tat, welfare of ouseolds will be better off if te minimum wage of workers is inreased from N18,000 minimum to N45,000 (i.e 150% inrease). Grapially, te perentage ange in simulations 1 and 2 is presented in Figure 1. Te positive effet of inrease in minimum wage on maroeonomi variables for bot senarios is onsistent wit te findings of Folawewo (2007 wo found tat inrease in minimum wage as positive effet on produtivity in all setors of te eonomy. Similarly, te positive impat of inreases in minimum wage on ouseold welfare as sown by te positive and ig values of te Hiksian Equivalent Variation for bot senarios may be so due to te fat tat, inreases in inome is assoiated wit inrease in onsumption even toug disproportionately as expressed by te Keynes Absolute inome ypotesis. Tis finding is onsistent wit te finding of Folawewo (2007) wo found tat a rise in minimum as positive effets on ouseold inome and onsumption.

7 % Cange Amerian Journal of Eonomis 2017, 7(5): Table 1. Impat of Inrease in Minimum Wage by 211% inrease (i.e. inrease from N18,000 to N56,000) on Maroeonomi variables and Houseolds Welfare in Nigeria Baseline Value (N Billion) Real Impat (N Billion) % Cange Agriultural Output 19, , Industrial Output 15, , Imports 11, , Exports 8, , Houseold inome 19, , Hiksian Equivalent Variation (EV) Houseold onsumption (Total) 12, , Houseold onsumption (Domesti goods) Houseold onsumption (Imported goods) Houseold savings 7, , Soure: Autor s omputation using GEMPACK Table 2. Impat of Inrease in Minimum Wage by 150% (i.e. inrease from N18,000 to N45,000) on Maroeonomi variables and Houseolds Welfare in Nigeria Baseline Value (N Billion) Real Impat (N Billion) % Cange Agriultural Output 19, Industrial Output 15, Imports 11, Exports 8, Houseold inome 19, Hiksian Equivalent Variation (EV) Houseold onsumption (Total) 12, Houseold onsumption (Domesti goods) Houseold onsumption (Imported goods) Houseold savings Soure: Autor s omputation using GEMPACK Agriult ural Output Industri al Output Imports Exports House old inome House old ons umption House old savings SIM SIM Figure 1. Grapi Presentation of perentage ange in simulations 1 and 2

8 256 Pilip Teremen Abai et al.: Maroeonomi and Houseold Welfare Impat of Inrease in Minimum Wage in Nigeria: A Computable General Equilibrium Model 8. Conlusions and Poliy Reommendations All te two poliy options (211% and 150% inrease in minimum wage) simulated indiated tat, inrease in minimum wage ave positive impat on maroeonomi variables of agriultural output, industrial output, export and imports in Nigeria. Tis finding is onsistent wit te findings of Falawewo (2007) wo found tat inrease in minimum wage ad a positive effet on te eonomy. Te finding on te oter and is inonsistent wit te finding of Erero (2016) wo found tat an inrease in te national minimum wage as a negative and distortive impat on te reported maro-eonomi variables. Te study also found tat inrease in minimum wage as positive impat on ouseold welfare indiators of inome and onsumption and savings in Nigeria. Te positive values of te equivalent variation for all te two poliy senarios indiated tat, te poliy of inreasing minimum wage as positive impat on ouseold welfare in Nigeria wit te 211% inrease aving greater impat. Tis finding is onsistent wit te finding of Mwangi, Simiyu and Onderi (2015) wo found a positive effet of minimum wage inrease on ouseold inome and onsumption. Based on tis, government sould as a matter of urgeny omply wit te demand of te organized labour and inrease minimum wage of workers from N18,000 to N56,000 (211% inreases) or from N18,000 to N45,000 (150% inrease) and ensure tat it is fully implemented at all levels of governane. Tis inrease in minimum wage apart from diretly inreasing ouseolds inome and onsumption levels, will raise aggregate demand and spur eonomi ativities witin te eonomy wi will in turn ensure positive eonomi growt. Appendix A: Matematial Summary Statement for Standard CGE Model Sets A ativities C ommodities CE( C) exported ommodities CM ( C) imported ommodities CT ( C) transation servie ommodities f F fators H( INSDNG ) ouseolds Parameters (Latin Letters) int a a mps i pwe pwm quantity of aggregate intermediate input per ativity unit base savings rate for domesti institution i export prie (foreign urreny) f.o.b= free on board import prie (foreign urreny).i.f = ost of insurane on freigt sii ii sare of net inome of i to I ( te tf f tia a tins i tm tq export tax rate diret tax rate for fator f value added tax rate (indiret tax) ( i INSDNG ; i INSDNG) exogenous diret tax rate for domesti institution i import tariff rate rate of sales tax trnsfr if transfer from fator f to institution i tva a ty Exogenous Variables FSAV IADJ rate of value-added tax for ativity a rate of ouseold inome tax rate foreign savings (FCU) investment adjustment fator QFS f quantity supplied of fator

9 Amerian Journal of Eonomis 2017, 7(5): WFDIST fa wage distortion fator for fator f in ativity a Endogenous Variables EG EH EXR MPS i PA a PDD PDS PE PINTA PM PQ PVA a a government expenditures onsumption spending for ouseold exange rate (LCU per unit of FCU) marginal propensity to save for domesti non-government institution (exogenous variable) ativity prie (unit gross revenue) demand prie for ommodity produed and sold domestially supply prie for ommodity produed and sold domestially export prie (domesti urreny) aggregate intermediate input prie for ativity a import prie (domesti urreny) omposite ommodity prie value-added prie (fator inome per unit of ativity) PX aggregate produer prie for ommodity PXAC produer prie of ommodity for ativity a QA a QD a quantity (level) of ativity quantity sold domestially of domesti output QE quantity of exports QF fa quantity demanded of fator f from ativity a QG government onsumption demand for ommodity QH quantity onsumed for ommodity by ouseold QHA a quantity of ouseold ome onsumption of ommodity from ativity a for ouseold QINTA a quantity of aggregate intermediate input QINT quantity of ommodity as intermediate input to ativity a a QINV QM QQ quantity of investment demand for ommodity quantity of imports of ommodity quantity of goods supplied to domesti market (omposite supply) TINS i diret tax rate for institution i ( i INSDNG) WF f aggregate prie of fator f WALRAS dummy variable (zero at equilibrium) WFDIST wage distortion fator for fator f in ativity a fa YENT ent enterprise inome YF f inome of fator f YG government revenue YI institution inome YH ouseold inome REFERENCES [1] Adams, G. (1987), Inreasing te Minimum Wage: Te Maroeonomi Impats, Briefing Paper, Eonomi Poliy Institute, Wasington, DC. [2] Adenikinju, A., Falokun G., Aminu A. and Fowowe B. (2012). Maroeonomi Impat Analysis in Te Impat of te Nigeria LNG Projet on Nigeria, edited by Adenikinju A., Fowowe B. and Ola-Peters J. (2012). CEAR Monograp Series 2. [3] Annabi, N., Kondker, B., Raian, S., Cokburn J. & Dealuwe, B. (2006). Impliations of WTO agreements and unilateral trade poliy reforms for poverty in Banglades:

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