Much Ado about Unemployment Data: Reconfigured to Reflect Reality?

Much Ado about Unemployment Data: Reconfigured to Reflect Reality?

The primary objective of data-driven policy formulation is to effectively inform and steer the process of developing, implementing and evaluating public policies by strategically leveraging data analysis and derived insights. By harnessing the power of data, policymakers have the opportunity to enhance their decision-making processes, leading to more well-informed choices, superior policy outcomes and a heightened ability to effectively tackle the various challenges faced by society.

Given the aforementioned, it becomes apparent why there is concern in certain quarters regarding the significantly lower figures presented by the National Bureau of Statistics (NBS) following its adoption of the International Labour Organisation’s (ILO) methodology for calculating unemployment rates. It is crucial to acknowledge that the NBS unemployment reports typically consist of three distinct datasets, namely ‘Old Nigeria’, ‘New Nigeria’, and ‘International’. The ‘International’ dataset specifically reflects the use of the ILO’s methodology so the absence of novelty in both the data and methodology prompts us to question the necessity of the shift, which is even more curious if you consider the lack of regularity in the release of unemployment data in recent years. Could the funding for the data-gathering exercise have been the pivotal element in compelling a shift to a methodology that ‘aligns with’ international best practices? This has become another subject for debate.

In contrast to the anecdotal evidence, the NBS announced a drop in the unemployment rate to 4.1% in Q1’23 from 5.3% in Q4’22 – a significant decline from the 17.5% recorded in Q4’20 – implying that Nigeria’s unemployment rate is now comparable to levels in the United States of America (USA) – 3.4%, the United Kingdom (UK) – 4.2%, and lower than the Eurozone – 6.4% and Canada – 5.5%.

Table 1: Old vs New Unemployment Methodology

Source: NBS

Based on the new methodology, individuals classified as unemployed are those who are not engaged in any gainful employment for less than an hour in a week. In addition, they must be actively seeking employment opportunities and ready to commence work. This definition represents a significant change from the previous criteria, which considered individuals working less than 20 hours as unemployed. The NBS has also expanded the sample size with a commitment to be more consistent in its collection and release of the data, which is positive for data-driven decision-making. A potentially game-changing benefit is that the revised numbers may shift the government’s focus towards tackling the issue of underemployment, now defined as people who work between 1-39 hours and are available for more work as it provides a more nuanced picture of the labour market situation than the unemployment rate alone.

Fact or Facelift?

While the revision aims to align Nigeria’s unemployment data with rates in other developing countries where work, even if only for a few hours and in low-paying jobs, is considered employment, the numbers, on the surface, appear to be out of touch with reality. Nigeria’s GDP growth has been outpaced by population growth in the last decade, fuelling high unemployment, declining GDP per capita, income inequality and slower economic and social development, which may undermine long-term economic growth prospects and potential. This narrative is widely regarded as fact. The unemployment rate is down to 4.1%, which, regardless of how mind-boggling it seems, is now also regarded as fact. Clearly, the NBS is telling us that we now have two realities, widely considered mutually exclusive, co-existing in modern day Nigeria.

Figure 1: Unemployment Data – New Nigeria vs International (%) (2014-2023)

Source: NBS

The NBS asserts that the implementation of the enhanced methodology will greatly enhance the efficacy of policy formulation. This will be achieved by fostering a more accurate and comprehensive understanding of the nation’s employment picture, encompassing a broader range of employment scenarios, including those within the informal sector that were previously overlooked. This has the potential to empower policymakers in formulating highly effective policies and programmes targeted at mitigating the challenges of unemployment and underemployment in the country.

A Fundamental flaw

So why do the readings from a supposedly more accurate barometer feel so wrong? Probably because, on the surface, they lack context and seem unrelatable to the average Nigerian. Many in the analyst community believe it is, at best, purely cosmetic, and, at worst, an attempt to downplay the sheer magnitude and complexity of the country’s unemployment crisis, as well as the sense of urgency it necessitates. Under the revised guidelines, someone who washes four to five cars in just over an hour, and earns a total of ₦2000 to ₦5000, is considered employed, even if that is all the work they do in a week. The same applies if they are a digital marketer or financial consultant with wages comparable with those in advanced countries. The evidence clearly points to the majority of Nigerian workers having low-productivity and low-wage jobs, therefore, on average, an hour of work in Nigeria cannot be compared to an hour of work in the USA, UK, or the Eurozone. This underlines the need for the adoption of country-specific guidelines that would more accurately reflect the unique employment conditions prevalent in different countries to avoid ‘Apples’ being compared to ‘Oranges’.

Conforming to ILO standards is undoubtedly a logical course of action, as they provide a reliable framework. Nonetheless, it is imperative to recognise that the primary purpose of unemployment data lies in its provision of valuable insights for informed policymaking, rather than its suitability for international benchmarking purposes. In order to achieve optimal outcomes, it is crucial that data, methodology, and policy objectives are all in alignment. This would empower policymakers with the necessary tools to holistically comprehend and quantify the challenges, propose suitable solutions and diligently monitor their subsequent impact. If policymakers are committing to generating employment opportunities that guarantee at least one hour of work per week, then the methodology can be considered successful. However, if their commitment extends to ensuring full-time employment opportunities for the majority of the Nigerian workforce, then this methodology falls short of meeting their expectations.

Figure 2: Employment Segments (%)

Source: NBS

In addition, the large informal sector, where 92.6% of Nigerians were employed in Q1’23, down from 93.5% in Q2’22, is evidence of past failures in policy making and implementation, which amplifies the need for alignment between data and policy. The report also notes the particularly high prevalence of informal employment in the agriculture and trade sectors. Consequently, for government social intervention initiatives to yield the best results, it is crucial to focus on these specific sectors.

On a final Note…

The one-hour-per-week benchmark makes it conceivable that the Nigerian economy could, on paper, attain full employment (0% unemployment rate) without any perceptible positive shift from the prevailing economic conditions of sluggish economic growth, foreign exchange scarcity, weakening consumer demand amidst stagnant real incomes and massive job losses. This observation underscores the inherent connection between valuable data and real-world circumstances. For data to be useful, it cannot be detached from reality.

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