• Wednesday, June 19, 2024
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A review of Nigeria’s new unemployment methodology

Digital transformation: A pathway to address Nigeria’s unemployment crisis

Introduction:

Unemployment is one of the key macroeconomic indicators used to assess the health of an economy. It provides insights into labour market dynamics and the efficacy of policy interventions. Governments and policymakers alike often use unemployment rates to make informed decisions about which sectors to invest in, what types of jobs to prioritise, and which programmes to implement to address employment challenges. In April 2023, the National Bureau of Statistics (NBS) announced it was changing the way it calculates the unemployment rate in Nigeria. The NBS adopted a new methodology for computing labour statistics, aligning with the International Labour Organisation (ILO) guidelines. Under the old methodology, Nigeria’s unemployment rate stood at 33.3 percent at the end of Q4 2020. However, the adoption of the new methodology drastically reduced this figure to 4.1 percent in Q1 2023.

Read also: Nigeria, US expect April inflation rate as UK releases unemployment data

Globally, unemployment remains a significant macroeconomic concern. In 2020, the ILO reported that the highest and lowest unemployment rates across the world varied significantly. For instance, countries like South Africa, Djibouti, and Eswatini grapple with the highest unemployment rate globally. On the other hand, countries like Qatar, Cambodia, and Niger boast remarkably low unemployment rates, with figures as low as 0.1 percent to 0.5 percent. Moreover, the World Bank estimates that Nigeria has a labour force of 73.2 million, or 32.4 percent of the total population, as of 2022. The ILO stated that the global unemployment rate as of 2022 stood at 5.8 percent, a slight increase from the previous rate of 5.4 percent.

The change in how Nigeria calculates unemployment sparked significant interest and debate. On the one hand, the updated method aimed to align with global standards, providing a more accurate picture of the labour market. Thus, the government hoped this would enhance the credibility of its data internationally. However, statisticians, economists, analysts, and policy experts criticised the new approach. They argued that it failed to capture the extent and actual level of unemployment in the country, which remains a major socio-economic challenge. Moreover, they argue that it could lead to reduced efforts in tackling unemployment issues due to the perception that the unemployment problem in Nigeria has disappeared, leading to complacency in addressing these socio-economic issues.

Furthermore, the adjustment of Nigeria’s unemployment methodology prompted a reassessment of existing policy frameworks and interventions aimed at addressing employment challenges. Policymakers used the updated information to develop specific plans for creating jobs, improving skills, and diversifying the economy. This moves towards using evidence-based policymaking to aid in allocating resources more effectively and tailoring interventions to meet the needs of Nigeria’s labour force.

2) Snapshot of the new unemployment methodology

The revised methodology broadened the definition of unemployment, with emphasis on the diverse forms of employment previously overlooked. Under the old approach, individuals were considered unemployed if they worked below 20 hours or actively searched for work in the reference week. With the revised methodology, the approach redefines who is considered unemployed, now including individuals who have actively sought work in the past four weeks and are ready to start employment. This broader definition means that some previously classified as unemployed are now categorised as employed, particularly those engaged in informal or part-time work. Consequently, the methodology shift complicates the interpretation of unemployment rates, as it does not necessarily reflect an increase in job losses but rather an expanded inclusion of individuals actively seeking work.

The working-age definition has also been modified. Previously, the working-age population was defined as individuals aged 15 to 64. However, the latest methodology extends this age range to 15 years and above. This change acknowledges older individuals who are still willing to work. Additionally, the active search for employment now qualifies individuals as unemployed, encompassing various job-seeking activities such as submitting applications, attending job fairs, and networking.

Furthermore, there have been adjustments in sample size and data collection methods. Under the old system, the NBS sampled 33,300 households quarterly, with data collection spanning 17–21 days. In contrast, the new approach adopts a sample size of 35,520 households spread across 12 months, allowing for continuous data collection throughout the year. However, these alterations pose challenges in data interpretation and policymaking, requiring careful consideration of employment figures to inform effective interventions addressing Nigeria’s labour market challenges.

3) Impacts on unemployment statistics in Nigeria

The new methodology for measuring unemployment has brought significant changes to how unemployment is understood in Nigeria, which have several important effects on the country’s labour market data. One major impact is the noticeable decrease in the reported unemployment rate since the new methodology was introduced. Under the old system, Nigeria’s unemployment rate was reported at 33.3 percent in Q4 2020. However, with the new methodology, this figure dropped significantly to 4.1 percent in Q1 2023. Amidst this, the sharp decline has sparked discussions about the reliability of the new unemployment figures.

Furthermore, the new methodology has changed how employment status is defined, affecting how individuals are categorised in labour force surveys. By expanding the definition of employment to include part-time or informal work, the new approach provides a broader view of employment in Nigeria. However, this change also raises questions about the quality and stability of the jobs available, especially in the informal sector. Additionally, the adjustment in age criteria for the working-age population from 15 to 64 years old to 15 years and above has implications for demographic analysis and policy targeting. Including a broader age range acknowledges the potential contributions of older individuals to the workforce but also highlights the need for targeted interventions to address the specific challenges faced by different age groups.

4) Major socio-economic challenges posed by the new methodology

Unemployment in Nigeria has long been a pressing issue stemming from systemic factors such as the country’s economic state, rapid population growth, and inadequate human capital development—an essential component of economic growth. Recognising the severity of this issue, policymakers must comprehend the implications of the new methodology in crafting strategies to combat unemployment and underemployment rates effectively. However, it is crucial to acknowledge that the new unemployment figures result from the methodology change and not solely from government intervention. Failing to recognise the limitations of the new methodology could impede efforts to address the root causes of unemployment in Nigeria.

5) Conclusion and recommendations

Unemployment is a critical measure for tracking progress towards achieving Sustainable Development Goal (SDG) 8, which promotes economic growth and decent work for all. Despite government efforts, Nigeria struggles with persistent unemployment. The new methodology for measuring unemployment introduces challenges, potentially underestimating the true unemployment rate. This misrepresentation could impact policy decisions and resource allocation. Redefining employment status may hide underemployment and informal work, hindering efforts to address broader issues of job quality and income inequality. Additionally, focusing solely on active job search activities may overlook complexities in the labour market, particularly in regions with limited opportunities. Shifting the age criteria for the working-age population may overlook challenges faced by younger demographics in accessing education and skills development.

Recommendations for addressing challenges posed by the new unemployment methodology in Nigeria include improving data collection methods, adapting policy frameworks to labour market changes, prioritising investments in education and skills development, promoting formal employment, implementing social safety nets, engaging stakeholders, and raising public awareness about the new methodology for unemployment measurement. In the end, the new methodology has come to stay, so it is now left for policymakers to customise policies and frameworks to enable the creation of jobs that are sustainable for labour market participants.

Prof. Joseph Nnanna
Chief Economist, Development Bank of Nigeria.

The views expressed in this article are those of the author; they do not necessarily reflect Development Bank of Nigeria policy.