On Monday, the 3rd of June, the Nigerian Labour Congress embarked on strike after their negotiations with the Federal Government collapsed, Labour leaders encouraged their members to stay at home and engage in the picketing of several offices. Their decision to shut down the national grid drew the ire of everyday Nigerians.
The NLC strike resurrected the debate on the minimum wage in Nigeria, usually, the Minimum wage applies mostly to government workers in Nigeria, private employees that have more than 25 staff members are supposed to comply, but this is not always the case from anecdotal evidence. The labour leaders proposed N615,500 and N495,000 as the new national minimum wage, most observers agree that these numbers are ridiculous but there is a lack of empirical evidence and econometric analysis into the value of a Nigerian’s time/ productivity beyond the demand and supply of labour.
Fuel scarcity is one of the vagaries of life as a Nigerian, despite local production of crude, we go through a regular cycle of fuel scarcity which was supposed to be solved with the removal of fuel subsidies to allow for market equilibrium price. When this happens, people often find themselves in long queues at petrol stations. Instead of raising prices to match the high demand, Major marketers and National retail chains maintain their prices(or increase very slightly as they are more regulated), and time becomes the currency people pay with. In economic terms, this situation allows us to measure how much people value their time.
During the most recent fuel scarcity I (alongside my Driver Mr Bolaji) sought to gather data to analyze from a natural experiment using a similar methodology and framework with Deacon and Sonstelie (1985). They utilized a natural experiment provided by the gasoline shortages during the 1979 oil crisis in the United States to investigate how consumers value their time when faced with waiting times to purchase gasoline. In most cases, their estimates of the value of time are similar to individual’s after-tax wages.
The Natural Experiment
This study focused on two petrol stations in Ibadan: Bovas, Iyana Church Road Akobo and Mercyland Filling Station, which is just 300 meters away from Bovas. On May 11,12,14 and 16 we surveyed consumers patronizing the two filling stations. The consumers in our sample faced two alternatives, at the control station (Mercyland), there was no wait time to buy petrol, but the price was relatively higher at 850 Naira per litre of Petrol. At the Bovas station, the price of Petrol was lower at 640 Naira but consumers faced significant waiting time in the queue. Due to the close distance between the two stations, on the same road, the choice of one filling station between the two revealed information on the opportunity cost of the time of the consumers.
Data Gathering and Observations.
The survey of motorists(Bovas did not sell inside Kegs to fight black market dealers) at Bovas filling station and Mercyland ended up with 325 respondents. Motorists answered several demographic questions including their highest level of education, marital status and if married, their partner’s income. Respondents indicated if they were fully employed, employed part-time, self-employed, housewives or students.
We also recorded if there were adult passengers in the vehicle as this raises the opportunity cost of time spent in the queue, we gathered data if the purchase happened on a weekend or weekday, the number of litres bought and the average waiting time. These two were additional dummy variables as the value of time during weekends is considerably lower as we also observed that most people joined the queue on Sundays.
From the make and model of the cars/bikes/tricycles, I was able to determine the tank capacity of the automobiles, an important variable for my analysis of the number of litres bought. We also gathered data on vehicle ownership and modelled for information cascades (people that joined the queue because others were in it and did not have further information about the other station) in line with Banerjee (1992).
Model Specification:
Dependent Variable: Quantity of petrol purchased.
Independent Variables: Waiting time, petrol price, income, employment status, education, household size, regional dummies, information cascade.
Control Variables: Availability of public transportation, vehicle ownership, distance from home to petrol station.
Observations.
We had 265 respondents who completed the survey in full and out of them, 199 at the Bovas station and 66 patronized Mercyland, it was understandably harder to survey Mercyland consumers because they were there to cut waiting times in the first place.
The customers that patronized the Bovas station waited in line for an average of 4.7 hours (consumers that stayed in queue very early before opening time may have skewed the numbers). Individual waiting times did vary and the standard deviation was 3.1 hours. We also gathered data on how long they would have waited regardless of the actual wait time, but I used the average of 4.7 hours to compute the final analysis.
We observed that the vast majority of consumers at the Bovas station did not own their vehicles(78%) compared to Mercyland (42%) which means that higher income earners with a better value of time had outsourced this activity, a lot of the buyers at Bovas were private drivers that were on the queue on instruction of their bosses and even the commercial drivers had the vehicle on hired purchase.
It was obvious that the choice of station depended on the quantity of petrol to be bought, consumers buying less than 20 litres overwhelmingly chose to buy at Mercyland while the average number of litres bought at the Bovas station was 21.8 litres. I understand that it is also possible that the quantity purchased might have been influenced by the choice of station and some consumers may have increased this quantity the longer they stayed in the queue showing a simultaneous relationship between these two variables, this was also incorporated into the model. On average, Bovas consumers bought 51% more petrol than Mercyland mostly because they practically had no partial fill-ups and low purchases at Bovas.
Most commercial vehicles with passengers in our study chose the higher-cost station as it was easier to transfer this cost to consumers immediately and also not increase the opportunity cost of every single passenger, commercial motorcycles had higher transaction costs when they chose Bovas because of their smaller tank capacity, they had to keep going back, this may have informed their decision to buy at higher cost. We found that the probability of waiting in line at Bovas correlated positively with tank capacity and negatively with the presence of passengers.
The Value of Time.
The respondents were categorized into 5 different categories namely
• Part-time workers
• Students
• Unemployed
• Housewives
• Fully Employed;
◦ 0-100,000 Monthly wage
◦ 100,000-250,000
◦ 250,000-500,000
◦ Above 500,000
The value of time will be derived from the trade-off between waiting time and petrol consumption. This was modelled as a function of income and other demographic factors. Different regressions were conducted for the different income levels in a sub-group analysis.
Generally, for employed consumers, controlling for other variables I found that people waited an extra 4.7 hours to purchase an average of 21.8 litres at 640 Naira per litre compared to no waiting time at Mercyland for 850 Naira per litre. From the data collected, the average employed consumer saved 210 Naira per litre purchased with an average purchase of 21.8 litres after staying in the queue for 4.7 hours, they valued their time at 974 Naira per Hour. This is the upper bound estimate for the average employed consumer.
Connecting Time Value to Minimum Wage
Understanding how much people value their time helps us figure out an appropriate minimum wage. Here’s how:
Hourly Wage Calculation: If 974 Naira is the value of one hour of waiting time, it stands to reason that this should be the minimum amount people earn per hour of work.
Weekly Earnings: Assuming a standard 40-hour workweek: 974 Naira per hour X40 hours per week = 38,960 Naira
Monthly Earnings: 38,960 Naira per week×4 weeks=155,840 Naira per month.
However, since this article started with the premise of Government workers and not necessarily private earners, assuming a standard 30-hour work week for Government workers (everyday tardiness, public holidays and early closures on Friday) we arrive at a different calculation.
974 Naira per hour X 30 hours a week = 29,220 Naira, so the minimum per Monthly income will be 116,880 Naira for Government workers from this estimation.
Conclusions.
Using this approach, the study suggests that the minimum wage in Nigeria should be at least 116,880 Naira per month to match the value people place on their time. This figure is based on the idea that if people are willing to wait for hours to save money, their time should be compensated similarly in the workplace.
Setting a fair minimum wage is crucial for ensuring that people can meet their basic needs. By understanding the value of time, policymakers can set a wage that reflects the true cost of people’s efforts, whether they are waiting in line or working a job.
It is important to also discuss the limitations in this research, I had a small sample size because the fuel scarcity was not foretold months prior, and I had to come up with the questionnaire and support staff within days. We also surveyed people who had self-selected into their purchase choices, therefore, the underlying distribution may have been different in a random experiment with an alternative distribution.
Another limitation is the additional cost for motorists that could not be computed, like other appointments that were rescheduled to join the queue or the true distance to the filling station, gathering this data could have increased the cost of Bovas purchases and for High/middle-income consumers that sent their drivers to make the purchase, we entered the data as the cost of the driver’s time without a measure of the opportunity cost of employer’s lack of access to the vehicle at the time
