Nigeria, NLC, Minimum Wage and Inflation

Published on Jun 7, 2024

Let's imagine we live in a small town where there are a few shops, some farms, and everyone knows each other.

Step 1: Understanding Money and Prices

  1. Money: Think of money as the tickets we use to buy things, like toys or candy. Everyone works to earn these tickets.
  2. Prices: When you go to the store, every toy or candy has a price tag showing how many tickets you need to buy it.

Step 2: What Happens When We Increase Wages?

  1. Wages: When people work, they get tickets (money) as payment. If we decide to give everyone more tickets for the same amount of work, that's like increasing their wages.

Step 3: More Tickets, Same Number of Toys

  1. More Money (Tickets): Now, everyone has more tickets in their pockets because they are earning more.
  2. Same Amount of Stuff: But the shops and farms haven't made more toys or candy. There are still the same number of toys and candy available.

Step 4: Increased Demand, Same Supply

  1. Increased Demand: With more tickets, people want to buy more toys and candy. They go to the store and try to buy more than they did before.
  2. Same Supply: The store has the same amount of toys and candy as before because the shops and farms haven't produced more.

Step 5: Prices Go Up

  1. Competition for Goods: Because everyone has more tickets and wants to buy more, they start competing for the same toys and candy.
  2. Higher Prices: The store owner sees this and realizes that since everyone has more tickets, they can charge more tickets for each toy and candy. So, the prices go up.

Step 6: Result is Inflation

  1. Inflation: This situation where prices go up because everyone has more money is called inflation. Even though people are earning more tickets, they need to spend more tickets to buy the same things as before.

In Summary

When everyone gets more money (tickets) but the amount of stuff (toys and candy) stays the same, people want to buy more, and prices go up. This is how increasing wages can lead to higher prices, or inflation, if the supply of goods doesn't also increase.

So, more work is needed to solve the economic situation of the country. Increasing the minimum wage only, is a band aid solution that will do more harm than good in a very short run.