Exit Recession, Pay Salaries

“You shall not muzzle the ox while it threads out the grain, and the labourer is worthy of his wages” 1 Timothy 5:18
“Look! The wages you failed to pay the workers who mowed your fields are crying out against you. The cries of the harvesters have reached the ears of the Lord Almighty” James 5:4
“The Prophet said, you should pay the labourer his wages before his sweat dries up” Sunan Ibn Majah Vol.3 (2443)
“And oh my people! Give just measure and weight, nor withhold from the people, the things that are their due”. Quran 11:85

It is no longer news that a lot of state governments are owing workers’ salaries. Some of them are in arrears for several months. In some states, workers are owed over 6 months’ salary arrears. Pensioners are worst hit as some of them have not received their pensions for several years. Some Governors of the concerned states have blamed their inability to pay on the recession the country has witnessed in the recent times. Both the Bible and the Quran are in agreement that workers are deserving of their compensation. In fact, the Quran is very clear about prompt payment of wages and speaks to paying workers before their sweat dries up. Prophet Muhammed had this to say, “ I will be the opponent of three types of people on the day of judgement” one of such people is “one who hires a worker but does not pay him his right wages owed to him after fulfilling his work.

I considered it expedient to start this column by referring readers to scriptural injunctions since we are very religious people. Most often than not, our religiosity is only convenient as we tend to sensitize ourselves to those passages of the scriptures that support our actions while we anesthetize ourselves to areas that are opposed to our positions.

From the moral perspective, it is only fair that an employer pays his worker as and when due. The English Standard Version of James 5:4 quoted above, refers to the refusal to pay wages as “fraud”. My agreement with this version stems from the fact that there is normally no agreement between the debtor and the creditor for the creditor’s money to be held back by the debtor prior to the action of the debtor. Secondly, like I had argued in my last column on interest rates, the time value of money is ignored. This simply means that the value of the money paid after the time it should have been paid is not the same. We are all aware that what N100 could buy yesterday, would require more than that amount to buy today. In owing workers, nobody talks about how they would be compensated for alienating them from their money for the period they are owed. Whenever the government decides to pay, there is no discussion of interest to be applied to the outstanding salaries. Meanwhile, if the government were to borrow money to pay up the wages as and when due, that loan will come at a cost. So, the act of forcefully borrowing from the worker, owing him for some months and returning the same amount of money that was forcefully taken does not have a better description than “fraud”. That we have been doing that without challenge by the workers neither makes it right, nor takes away anything from its real name. Again, I consider it an act of encouraging corruption for an employer to owe his workers and still expect him to work. There must be a message being passed by the employer to the employee.

So, the concern that I have is how the debtor-governments expect that their workers would survive without pay for so long. Employers must be worried about the wellbeing of its workforce. If they don’t do it out of altruism, they must do it out of self-interest. If your workforce is not in top form, productivity would suffer. Employers are concerned about productivity for it is only a productive workforce that would guarantee long term survival of the institution. Is it likely that our owing governments are not interested in the productivity of their workforce? There is this Soviet joke which was later modified by the Hungarians thus, “they pretend to pay us an honest wage and we pretend to put in an honest day’s work”. This is “Mutually Assured Deceit” (MAD) at its best.

Perhaps the most compelling argument at this time is that we are in a recession. Those who understand that recession refers to negative real GDP growth in an economy for two or more consecutive quarters will appreciate that if there is any time that salaries and allowances should be promptly paid, it is now. Why? Because recession means that there is a lull in economic activities. It is a period of massive decline in demand for goods and services. It is a time that people are unable to buy the things that they used to buy.

Because demand is weak, production will reduce accordingly. This is understandable because production does not happen in isolation. Whatever is produced has a purpose: to meet demand. When production goes down, it also follows that companies will reduce their staff strength and in extreme cases close down to avoid prolonged loses. Other actors in the production process, including vendors and suppliers will be affected, thereby reinforcing more layoffs and shutdowns. So, what is the solution to this problem? Of course, we can adopt the lazy option, which is throw our hands in the air and blame it on recession. This option would further weaken demand, reduce supply and engender further shut-downs and unemployment.

Another option is to take the bull by the horn and find a way to break the vicious cycle. Where else to break the cycle from than from the demand side, after all, it is weak demand that led to economic slowdown. This action is called “stimulating demand” in economic parlance. You can stimulate demand by putting more money in the hands of people to encourage them to consume more goods and services in the economy. I must at this juncture, admit that there are circumstances where more money does not lead to more demand. Under this situation, people would rather save than consume and therefore defeat the purpose of putting money in their hands. That, however, happens when the money ends up in the wrong hands. So demand stimulation exercises are targeted at those who would spend rather than save. These are usually workers. They are also targeted at people who would consume locally made goods, otherwise, the effect of the spending would be felt in the country where the goods are made. The class of people that fit in here, are also workers. I am also aware that the level of productive activities in the economy is limited. However, effective demand would necessitate amongst other things, more productive activities, ceteris paribus.

An area that not a lot of people have paid attention to is the effect of non-payment of salaries on banks that have extended “Salad” to the workers. Some banks created credit products called Salary Advance [(Salad), nothing to do with food], for workers. When the salaries are not regular, such obligations cannot be promptly serviced. Even when such payments are received in due course, since governments don’t pay interest on the past due salaries, the workers will either be forced to look elsewhere to service the loans or leave bad loans behind for no fault of theirs. My sense is that these kind of facilities may constitute a sizable chunk of bad loans that our banks are carrying in their books at the moment.

This takes me to the issue of cash transfers. The Federal government announced recently that it has started paying the N5, 000 monthly allowance to the poorest of the poor amongst us. There has been some concerns as to how the beneficiaries were selected, why the payment did not start in all the states at the same time etc. For what it is worth, I believe this is a step in the right direction and the Federal government deserves commendation. Cash transfer, as it is sometimes called has worked elsewhere. President Franklin D. Roosevelt, FDR (1882-1945) was the Great Depression and World War II president of the US between 1933 and 1945. In his “new deal” policy to get around the effects of depression on the economy, his major policy thrust was to put money in the hands of the populace, a policy that is sometimes referred to as “priming the pump” in order to stimulate the economy. He started by ensuring that workers were not only paid, but very promptly. He created jobs and made provisions for those who were not employed to be paid, through his Federal Emergency Relief Administration (FERA). He created the Civilian Conservation Corp (CCC) which immediately engaged 300,000 Americans in over 1200 camps to plant trees, build bridges and clean beaches and roads for which they were handsomely paid. He supported agriculture and rural communities culminating in the massive electrification of most of rural America. FDR used the instrumentality of government to support the resuscitation of industry, having got congress to pass the National Industrial Recovery Act (NIRA). Most of the ailing businesses got support from government. These largely worked until FDR yielded to political pressure to balance the budget and reduce government spending which took away all the gains he earlier made in massive rollout of jobs and relief incentives. The advent of the Second World War, however, coupled with the reinstatement of deficit spending took the US out of recession in 1945, the same year FDR died. Recovery was made possible because the country had invested in supporting agriculture and industry which provided the backbone for the war economy.

It is my opinion that governments at all levels should ensure that workers are paid and very promptly too. There are a few states who understand this and have been dutiful in payment of salaries and I must acknowledge them in this piece. But a large majority are still culprits. I expect that someone would ask me where the money to pay workers is going to come from. In my response, I will ask them where all the money they spend comes from? How have they prioritized their expenditure? In fact, there can’t be a better answer than the one given by Comrade Adams Oshiomhole, the former governor of Edo State sometime in 2015. Oshiomhole had chastised his colleagues who were owing salaries arguing that positing that states could not pay salaries was akin to saying that there was no food for the “Oga” because the houseboy had eaten. He insisted that salaries and allowances of workers pale into insignificance when compared with other expenses run by governments. In his own words, some governors were still living very expensive and ostentatious lifestyles including flying private jets when salaries are not being paid. He concluded that it is a criminal breach of contract to owe workers as salaries are part of a contract between the government and its workers. I must commend the Comrade Governor for increasing minimum wage for workers in Edo State from N18, 000 to N25, 000, before he left office.

It is also my contention that with proper planning, salaries should not be too difficult to pay. With the payment of salaries, employers can rightly demand commensurate productivity from employees. Employers would be in a position to evaluate their staff with a view to streamlining their workforce, keeping only those that can guarantee optimum productivity and dispensing with those who do not have the required competence to fit into the more rigorous demand of a more efficient and paying environment. Having said this, I also believe that there is nothing wrong with workers negotiating better pay. After all, there is a saying that “he who pays peanuts, gets monkeys”. It is in this light, that I do not object to labour’s demand for an enhanced minimum wage. This is subject to the understanding that to whom much is given, much is expected. The current minimum wage of N18, 000 came into effect over ten years ago. Given incessant inflationary and exchange rate realities, it is only logical that the minimum wage be adjusted periodically to ensure it remains realistic. These actions would not only support a more energetic workforce, but would also contribute positively towards exiting recession. This is by way of encouraging governments at all levels to be more favourably disposed towards labour’s demands as it also offers governments the latitude to make its own demands on labour. I am by this medium intervening in the anticipated breakdown that is usually associated with employer /employee negotiations, by appealing to each side to be reasonable to avoid the kind of dialogue that is reported below where an employee had not only gone to his boss to ask for a pay raise, but a day off. The boss retorted thus:
“There are 365 days this year. There are 52 weeks per year in which you already have 2 days weekend off per week, leaving 261 days available for work. Since you spend 16 hours each day away from work, you have used up 170 days, leaving only 91 days available. You spend 30 minutes each day on coffee break. That accounts for 23 days each year, leaving only 68 days available. With a one hour lunch period each day, you have used up another 46 days, leaving only 22 days available for work. You normally spend 2 days per year on sick leave. This leaves you only 20 days available for work. We are off for 5 holidays per year, so your available working time is down to 15 days. We generously give you 14 days vacation per year which leaves only one day available for work. Are you really sure you want to take the only day left off and are you convinced we need to pay more for not working at all?” Your guess should be as good as mine as to how this negotiation ended.
Finally, President Buhari, in sharing the Paris Club refunds to states, advised State governors to ensure that they pay salaries with the refunds. Even though some state governments have decided to harken to the President’s advice in breach, it is instructive and encouraging that the President appreciates the impact of salary payments on recession, while some other leaders don’t.

So, Your Excellencies, the owing governors, let me reassure you that it makes perfect economic sense to pay salaries in a recession. We, the people, are therefore waiting for our “alert”, so we can join Korede Bello in chorusing “God win”.