Methodology was made for Man
Nigeria’s National Bureau of Statistics (NBS) released its Nigeria Labour Force Survey report covering Q4 2022 and Q1 2023. This would normally be an unemployment report except that this was the first time the survey was being compiled using a ‘new’ methodology that is in line with the International Labour Organisation (ILO).
It would be a gross understatement to say that the results were ‘interesting’. And that is leaving aside how poor the report is in terms of quality (10% less mediocrity, please!):
About three-quarters of working-age Nigerians were employed — 73.6% in Q4 2022 and 76.7% in Q1 2023. This shows that most people were engaged in some type of jobs for at least one hour in a week, for pay or profit.
Working for just 1 hour in a week was enough to trigger ‘employment’ under this new methodology and it is no surprise that the vast majority of Nigeria’s working age population were counted as ‘employed’.
Even better:
Unemployment stood at 5.3% in Q4 2022 and 4.1% in Q1 2023. This aligns with the rates in other developing countries where work, even if only for a few hours and in low-productivity jobs, is essential to make ends meet, particularly in the absence of any social protection for the unemployed.
This puts Nigeria at about the same unemployment rate as the UK and much lower than Canada. Given numbers like these, everything is fine and there is no problem to solve.
That the NBS has released numbers like these to the public tells an unflattering story. And it points to a backward understanding of methodologies and how they should be used. In rich(er) countries where the labour market is dominated by formal employment, setting the trigger for employment at 1 hour a week will produce robust results for the simple reason that jobs requiring you to work for only an hour a work are practically non-existent. As an example, zero-hours contracts have become such a political hot topic in the UK that the Labour Party has pledged to abolish them if they win the next election. And yet, all they mean is that the worker is essentially hired ‘on call’ for when you need them (a lot of people actually like them because they are flexible and they don’t stop them from taking other jobs). If contracts like these are such a political hot topic, you can imagine what will happen if a company were to employ people to work only one hour a week.
The reason why such a methodology makes no sense for Nigeria (or should require the results being adjusted for this reality before being released) is right there in the same NBS report:
The rate of informal employment among the employed Nigerians was 93.5% in Q4 2022 and 92.6% in Q1 2023.
Formal jobs — with stipulated legal contracts — are a tiny minority of the jobs being done in the country. Of course for such jobs you will hardly find anyone employed for only 1 hour a week so the results will be robust if you set the trigger at 1 hour per week. But for informal jobs? Anything goes.
Therefore, from a policymaking perspective, the NBS has released a report that is more or less useless for Nigeria. If the unemployment rate in Nigeria is 4.1% how should the Nigerian government respond? Should it target getting that number down to 2% by 2027? Or should it introduce unemployment benefits for the 4.1%? Either way, you can imagine how ridiculous a policy response to that 4.1% unemployment rate would look.
If we take the unemployment number as useless for policymaking, the next best thing is the informal employment rate. That presents some very important challenges to think about. Simply put; Nigeria needs a lot more formal employment and preferably created by large firms.
Here’s a World Bank book from a couple of years ago titled Making It Big: Why Developing Countries Need More Large Firms
It is no secret: small and mid-size firms are the backbone of economies every- where. They account for more than 9 out of every 10 businesses. They generate half of all jobs. Yet the actual trajectory of economic growth and prosperity is determined by a different type of firm — businesses lucky or plucky enough to make it big.
High-performing economies tend to have a larger share of employment in big, competitive firms than other countries. Such firms are usually more pro- ductive and have better market intelligence: they can lower production costs while making high-quality investments and reaching the markets they need to succeed. They are more likely to innovate, more likely to export, and more likely to adopt international standards of quality. They typically pay higher wages and provide more secure employment than small firms.
In small and lower-income countries, however, there is a pronounced short- age of large, competitive firms — and the deficiency impedes economic prog- ress where it is needed most. Indonesia, for example, has just 9 large firms for every 100 mid-size firms in the nonagricultural sector. By contrast, the United States has 20 large firms for the same number of mid-size firms. If Indonesia’s business environment were as friendly to large-firm creation as the business environments of high-income economies, the country could have an estimated 230,000 additional jobs in the manufacturing sector.
By Nigeria’s own definition, as the paper shows, a large firm is one that employs at least 200 people:
In other words, Nigeria needs a policy response that allows the creation and survival of these large companies that employ 200 or more people. It’s not that companies employing 10 or 20 people are useless or unwelcome but that larger firms not only create jobs but, more importantly, allow a much quicker development of human capital.
I like the way Professor Ricardo Hausmann illustrated the point: a small hospital might not be able to employ an anaesthesiologist because they only get to do any work if there is a surgery i.e. their work requires the presence of surgeons. And yet, surgeons cannot perform surgeries without anaesthesiologists. That is to say, you need employment arrangements that allow the co-location of surgeons and anaesthesiologists under the same roof i.e. big hospitals. In a country where all hospitals are small sized, you may never be able to develop anaesthesiology as a skill in your economy at meaningful rates.
This NBS labour force survey fails the simple test of understanding that methodology was made for man and not the other way round.
But what it tells us about the structure of the Nigerian labour market hints at where the work and long term focus needs to be.
