Nigeria's Unemployment Figures: Understanding the Measurement Discrepancy

A stroll through Oshodi, Lagos, reveals a bustling scene with countless individuals engaged in various forms of work, from selling groundnuts to hawking goods. Despite this visible economic activity, official statistics from the National Bureau of Statistics (NBS) have, for years, indicated a high unemployment rate, with one in three working-age Nigerians jobless in 2020. This apparent paradox stems from how employment is defined, measured, and reported.

Nigeria's labour market presents a complex picture, particularly when official statistics show a stark contrast between observable economic engagement and reported unemployment. This discrepancy is not random; it is a direct consequence of the methodologies employed in defining and measuring employment. Understanding this nuance is crucial for accurately diagnosing Nigeria's economic challenges.

The National Bureau of Statistics (NBS) reported a 33.3 per cent unemployment rate in the fourth quarter of 2020, affecting approximately 23.18 million people. This figure represented a sharp increase from the previous quarter, largely attributed to the economic impact of the COVID-19 pandemic. The combined rate of unemployment and underemployment reached 56.1 per cent, indicating that over half of the labour force experienced severe labour market difficulties. However, in 2023, the NBS adopted the International Labour Organisation (ILO) standard methodology, which led to a dramatic reduction in the headline unemployment rate to about 4.1 per cent.

This significant drop was not due to a sudden economic boom but rather a change in definition. Under the ILO framework, an individual is considered employed if they worked for at least one hour during the reference week, regardless of pay, profit, or family gain. Previously, Nigeria used a threshold of 20 hours per week, which captured the inadequacy of work more effectively. Both definitions are valid but answer different questions about the labour market, and their conflation can lead to confusion regarding the true scale of the employment problem.

The ILO's one-hour work threshold means that subsistence farmers, informal traders, casual labourers, and unpaid family workers who engage in any work during the survey week are counted as employed. Given that Nigeria has a substantial informal sector and millions of smallholder farm households, a large portion of the working-age population will always meet this minimal employment criterion. This structural characteristic leads to very low headline unemployment rates, even during periods of economic hardship. The headline rate, therefore, primarily indicates the presence of work rather than the quality, security, or adequacy of that work.

The more revealing metric for policy purposes is the vulnerable employment rate. This measures the proportion of workers in informal, precarious situations lacking social protection, job security, or consistent income. World Bank estimates suggest that Nigeria's vulnerable employment rate hovers between 80 and 85 per cent of those officially employed. With approximately 77 million Nigerians classified as employed in recent surveys, this translates to 61 to 65 million individuals in economically insecure positions. The challenge is particularly acute for graduates, with a considerable annual output from higher education institutions facing a formal economy that generates insufficient jobs, exacerbating credential oversupply and contributing to emigration and social unrest.

Comparing Nigeria to countries like South Africa highlights the impact of measurement differences. South Africa reports a much higher unemployment rate (around 32 per cent) under the ILO definition. This disparity arises because Nigeria's extensive informal sector absorbs individuals who might otherwise be counted as unemployed in economies with smaller informal sectors. Nigeria's labour market reality is arguably closer to South Africa's than the headline unemployment figures suggest. Policymakers who rely solely on the 4.1 per cent figure risk making decisions based on an incomplete assessment of the labour market situation.

To provide a more accurate picture, the National Bureau of Statistics should consistently publish a range of supplementary labour market indicators. These should include the vulnerable employment rate, the labour underutilisation rate (combining unemployment and time-related underemployment), the percentage of workers earning below the national minimum wage, and the youth labour underutilisation rate. These measures are derivable from existing survey data and their omission from official releases appears to be a communication choice rather than a technical constraint.

Furthermore, industrial policy should prioritize formal job creation targets over general GDP growth, as GDP growth can be heavily influenced by the informal sector without significantly improving vulnerable employment. Aiming to create approximately 1.25 million new formal sector jobs annually for a decade would make a tangible difference in reducing vulnerable employment and graduate unemployment.

Finally, enhancing the quality of informal employment is as crucial as formal job creation. This involves improving access to finance, skills development, and social protection for informal workers. Such measures would elevate the welfare of the millions who will continue to work in the informal sector, regardless of short-to-medium-term formal sector employment outcomes.

Nigeria's unemployment paradox underscores a measurement problem with profound real-world implications. The nation is neither as employed as the headline figures suggest, nor as unemployed as the peak rates indicated. The labour market is characterised by widespread activity, but much of this work is insufficient in terms of pay, accumulation, and contribution to long-term development. Accurate measurement of this reality is a fundamental responsibility for any government committed to the well-being of its workforce. The author, Akinola Morakinyo, writes on emerging economies from the Department of Economics, Finance and Quantitative Analysis at the University of Kennesaw, Georgia, USA.