LABOUR FORCE PARTICIPATION, EARNINGS AND INEQUALITY IN NIGERIA By Fidelis O. Ogwumike Olufunke A. Alaba Olumuyiwa B. Alaba Babatunde A. Alayande Christiana.E.E Okojie Presented in the National Dissemination workshop on Poverty and Inequality In Nigeria Sponsored by African Economic Research Consortium (AERC), Nairobi, Kenya 10th – 12TH October, 2006

Outline of presentation Introduction Objectives of the Study Labour Market Situation in Nigeria Labour Market Issues Method of Analysis Data Results Policy Implications/Recommendations

Introduction Importance of labour market for welfare The structure of the market has impact on employment status and influences household income and welfare. Earnings-cash income and non-cash income Links between income differences and Inequality affected by permanent or transitory factors level of earnings and extent of disparity among groups Labor market participation- types of job, hours of work Welfare of individual or family depends on access to employment and remuneration

Objectives of the study Examine labour market structure and implications on earnings and inequality Identify determinants of labour force participation, earnings and inequality in Nigeria Provide answers to questions relating to gender differences in labour market opportunities Provide policy inputs to analysts and policymakers in Nigeria

LABOUR MARKET SITUATION IN NIGERIA –Manpower Board1998

Labour Market Situation in Nigeria Self employment dominates 54.9% Paid employment – private 18.6% Paid employment – public 20.1% Others 6.4% Self employed Male 50.1% Female 62.1% Paid private Male 22.0% Female 13.4% Paid public Male 20.3% Female 20.0% Others Male 7.6% Female 4.5%

Type of Employment by Gender, 1998

Labour Market Issues Labour Force Participation Features of the labour market . Formal . Informal Location Rural – largely informal Urban – mix of formal and informal Labour Force Participation Income Inequality and Determinants

Method of Analysis Measurements Income Inequality Gini Coefficient Theils Entrophy Index Empirical Models Mincerian Earnings Equations and estimation procedures as in detail on pages 9 to 10. Tobit labour Supply function (Pages 10 and 11)

Methods of Analysis Heckman Two Stage Least Square Ordinary least Square Tobit Procedure

Data General Household Survey. 1999- Conducted by the former Federal Office of Statistics Comprises of: 7980 Households – Rural 5842 Urban 2138 36695 Individuals– Rural 27288 Urban 9407 Only individuals 15 years and above used in the study. (20904) Out of which 10387 reported earnings – Male 6937 Female 3450

RESULTS Qualitative and Quantitative

Table 4.1: Labour Market and Activities of the Population

Labour Market and Activities of the Population Economically active 59.3% Economically inactive 40.7% Male economically active 75.3% Female economically active 44.4% Hence 55.6% of females eligible to work did not work at time of survey as against 24.6% males. Male labour force participation higher than female

Table 4.3 Inequality by Gender and Rural- Urban Dimensions Sector/Gender/Inequality Indices GE(0) GE(1) GE(2) Gini Coefficient Income share Population share Aggregate 0.376 0.564 4.356 0.470 Male Female Within Inequality Between Inequality 0.360 0.367 0.363 (96.5) 0.013 (3.5) 0.524 0.633 0.552 (97.8) 0.012 (2.2) 3.631 6.720 4.343 (99.7) (0.3) 0.459 0.466 0.740 0.259 0.668 0.332 Urban Rural 0.300 0.387 0.362 (96.4) (3.6) 0.334 0.672 0.550 (97.5) 0.014 (2.5) 0.713 7.023 4.341 (99.6) 0.015 (0.4) 0.415 0.476 0.640 0.282 0.717

Inequality by Gender and Rural- Urban Dimensions Inequality is about the same between male and female (male 0.459, female 0.466) using Gini coefficient. Based on Theil measure inequality is higher for female than male (female 0.633 and male 0.524) Within group inequality accounts for 98% of inequality by gender. While between gender inequality accounts for only 2%.

Inequality by Gender and Rural- Urban Dimensions Urban-rural inequality is about the same based on Gini coefficient (urban 0.416 and rural 0.415) Based on Theil Index, urban inequality is lower than rural (urban 0.334 and rural 0.672) Within group inequality dominates at 97% as against between group at about 3%

Table 4.4: Inequality by Primary Employment Group, Gender and Rural –urban dimensions

Inequality by Primary Employment Group, Gender and Rural –urban dimensions Inequality is slightly more in self employed male than female (male 0.42 female 0.41) Theil Index shows that inequality is lower among male than female (male 0.34 and female 0.41) Within group inequality still accounts more of the inequality than between group (96% and 4%)

Table 4.5 Earnings equation using Heckman Procedure and OLS by Sex (log of Earnings as Dependent Variable) Total Population

Earnings Literacy significantly and positively affects income Education is not significant However, using OLS education is significant and literacy is not significant Being employed in rural area is significant and sign is negative

Table 4.6 Analysis of Inequality by Employment Group: Self-employed

Determinants of Inequality Inequality was measured by deviation from mean income Self Employed– determinants of inequality include education, literacy, presence of young dependants, gender and location. Under-6 children significantly affects mothers’ income, given the sharing of time between labour market activities and child care.

Table 4.7 Inequality by Employment Group: Wage Earners

Determinants of Inequality – wage earners Wage earners- determinants of inequality include education and divorce (especially for women) Self Employed– determinants of inequality include education, literacy, presence of young dependants, gender and location. Under-6 children significantly affects mothers’ income, given the sharing of time between labour market activities and child care.

Table 4.8: Labour Supply Equation using Tobit Procedure (Hours supplied as dependent variable)

Determinants of labour market participation Labour market participation was measured by hours of work Significant determinants include age, education, marriage, divorce and loss of spouse For married female, marriage affected participation in the labour market significantly though has a negative relationship Presence of uner-6 children is inversely related to women participation in the labour market

Policy Implications/Recommendation Labour force participation rate is higher among males than females. Need to improve opportunities for females to engage more in income earning activities. In the short run, this can include emphasis on skill acquisition and credit facilities to enhance participation of females in labour market. On the long run, focus could be on female-child education, improved access of women to ownership of assets Need for social security for children under six to take care of lower mother participation in labour market. In particular day care provision for children to encourage mothers to work on income earning activities. Income inequality is more pronounced among the paid employee than self employed. Need to continue to address issues of disparity in cash and fringe benefits among the paid employees given the government reform as it affects monetization. Need to address the wage gap between private and public paid employee.

Policy Implications/Recommendation On the average the self employed earn less than paid employee. The need to improve working environment for the self employed. This could include infrastructure provision, (e.g electricity, transportation etc.) and market opportunities. Need for institutions to coordinate commodities and services provided mainly by the self employed. This can enhance quality, ensure access to markets and improve earnings.

Policy Implications/Recommendation Male workers earn higher average income than female workers. Although the study did not control for age and education. The disparity in earnings might be mainly from private informal activities where wage differences exist due to nature of job. Rural and informal urban workers need incentives to enhance their earning and thus welfare. Creating appropriate institutions to complement market forces would go along way in improving quality of products and market opportunities.

Conclusion ☻Labour market is a primary area where inequality should be addressed ☻Structure of the labour market is an important factor in determining welfare ☻inequality is more pronounced in paid employed ☻Inequality was higher among women involved in paid employment ☻ Disparity in labour earnings is a specific factor, which explains inequality among Nigeria workers