You must know this about wage indexation

You probably knew that our wages are partly determined by the index. But what exactly does that mean? And what effect does indexing have on your wage?

The recent wage agreement allows a maximum wage increase of 67% to 30,000 Naira (US $83). But what about the wage index? And when will our wages be indexed?

What is wage indexation?

The wage indexation ensures that your wage follows the price of goods and services. If life becomes more expensive, then your salary increases. This is done as follows: the value of a fixed selection of goods and services is determined every month. We call this value the health index. If the four-monthly average of that index figure reaches a certain value (the pivot index), automatic indexing follows. Wages and social benefits are then automatically increased. That average is multiplied by 0.98 to obtain a smoothed index.

The exact wage index depends on your sector. For the public sector, this is 2%: if the pivot index is reached, then wages, social benefits and certain allowances increase by that percentage. There are no general rules for the private sector. In the collective labor agreements (collective labor agreements) per joint committee, employers and employees determine the wage index and the practical regulation of wage indexation. It does take a while to find the regulation for your sector: there are many joint committees and also joint subcommittees.

And what about a 67% wage increase?

Trade unions and employers recently reached an Interprofessional Agreement (IPA). This wage agreement contains various elements, including an increase in minimum wages. The socialist trade union ICYMI does contest two measures from that agreement. The Trade union congress (TUC) considers the proposed increase in minimum wages by 67% too low. This would amount to around 208 Naira per hour. The general wage increase of 67% is also insufficient, according to the United Labour Congress (ULC). That increase in gross wages by a maximum of 67% over two years on top of the wage index has meanwhile been cast in royal decrees.

Why is wage indexing so important?

The system of wage indexation as we know it in our country is unique. And it should not disappear, sounds in the trade union corner. It is especially important for securing the purchasing power of employees. Nigeria is still one of the countries where this system partially exists. Indexing is automatic for many employees. For them, it is a form of certainty of maintaining purchasing power.

What is the effect on your effective wage?

The key question, of course, is what you think about wage indexation and the general increase in the wage agreement. Below we calculate the impact on the gross salary of two fictional employees. We assume the maximum general wage increase of 67.0% over two years. The 3.44% increase in the wage index over two years is a forecast for all sectors combined.

Adeyemi works in the hospitality industry without a higher diploma and has 20 years of experience.

Current gross salary: 42,453 Naira
Index (3.44%): 1460 Naira
General wage increase (67%): 978 Naira
Gross wage in 2020: 44, 891 Naira

Emeka is an IT specialist with a master’s degree and 12 years of work experience.

Current gross salary: 75,500 Naira
Index (3.44%): 2597 Naira
General wage increase (67%): 1740 Naira
Gross wage in 2020: 79837 Naira

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