Unemployment Soars as Recession Bites

Proshare

Friday, September 02, 2016 1:17pm / Vetiva Research

Recession took its toll on the Nigerian labour market as official unemployment and underemployment rates rose to 13.3% and 19.3% respectively in Q2’16, up from 12.1% and 19.1% in the preceding quarter.

Whilst the general upward trend continues to be driven by labour force expansion (1.78% q/q uptick), the markedly higher unemployment rate can be partly attributed to a reduction in the number of people in full-time employment against the previous quarter (down 0.65%).

This represented the first decline in full-time employment since the introduction of the new unemployment classifications in 2015, and precipitated a 1.38% y/y fall. The contraction is somewhat expected given the sharp downturn in GDP growth across key sectors during the quarter with the Services sector joining Manufacturing and Oil & Mining (both under Industry) in negative growth territory.

It is thus not surprising to see an acute increase in unemployment rate in Urban areas from 15% to 17.8% quarter-on-quarter. Furthermore, underemployment rate of the most qualified workers in the economy (post-secondary education) fell from 19.8% to 17.2% whilst unemployment rate for the same group rose from 15.6% to 23.2%, signifying the deteriorating outlook for workers most likely to be employed in the aforementioned sectors.

Concluding, rural unemployment also rose to 11.3% whilst unemployment rates for both genders trended upwards, with women still recording comparably higher levels (15.3% vs 11.5%) of unemployment.

Present struggles for the nation’s future
In line with recent trend, unemployment was particularly high for the 15-24 year age group. Unemployment rate registered 24% compared to 21.5% in the preceding quarter but underemployment declined marginally to 34.2% (Q1: 34.6%). This means that 58% of this age group are either unemployed or underemployed.

Strikingly, this age group forms 20% of the entire labour force but represent as much as 36% of all unemployed or underemployed people. With this age group expanding by 4.1% q/q (compared to underlying labour force growth of 1.8%), conditions for this demographic are likely to worsen.

Productivity records slight rebound
Following two successive quarterly declines, labour productivity in Q2 came in 5.3% higher q/q at 637.50. The quarterly improvement was unable to lift productivity in H1 with average productivity down 11% from the first half of 2015.

We believe that this drop was caused by severe disruption to energy, power and transport services during the period. Meanwhile, we highlight the continued decline in hours per worker (Total hours divided by Labour force) – whilst it may suggest a bloated workforce, it is encouragingly consistent with observed global trend of lower hours per worker in more productive countries.  

Widening jobs deficit
The NBS also released Job Creation data for Q4’2015 and Q1’2016. The key takeaway is the widening jobs deficit (the difference between new jobs created and labour force expansion). Jobs deficit in the first quarter of the year stood at 1.45 million, compared to 518k in the preceding quarter, as informal job creation plunged from 475k in Q4’15 to 61k in Q1’16.

We note that these trends were observed pre-recession and are likely to worsen in the second quarter of the year. In particular, we expect a sustained decrease in the proportion of the working age population not in the workforce on the back of the economic downturn whilst weak business sentiment will keep job creation low.

Labour market to mirror real economy
There are three prevailing concerns for the labour market. The first is ability of the economy to absorb projected increases in the labour force as a result of higher growth in the working population.

On a similar note, persistently high levels of youth unemployment pose further threats to security. Finally, the labour market is unlikely to fare better as long as Nigeria remains in recession.

This is highlighted in the August reading of the purchasing managers’ index with Employment Levels in both manufacturing and non-manufacturing sectors recording the lowest figures on record. Nevertheless, effective implementation of the 2016 budget could be a boon.

Initiatives targeted at sectors such as Agriculture, Education and Solid mining could improve employment levels. Also, special intervention schemes for low-income earners should have a multiplier effect whilst capital expenditure has the potential to address an infrastructure deficit that shrinks productivity.

However, currently strained government revenues continue to douse optimism on fiscal spending and near term recovery of the labour market.



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