LABOUR MARKET WAGE POLICY AND RURAL HOUSEHOLD WELFARE IN NIGERIA

Abstract

Labour market participation, alongside unregulated rural sector wage policy could diminish the welfare of household heads and their members in rural areas of Nigeria. Evidence is scanty on the effect of labour market wage policy on welfare of households. Therefore, effects of labour market wage policy on welfare of household heads and their members in rural Nigeria were investigated.

Secondary data from the General Household Survey (GHS 2010/11, wave 2) with a total of 1,319 household heads were used. A Social Accounting Matrix (SAM) constructed from the input-output table for Nigeria for year 2011, the GHS 2010/11 survey data and the National Bureau of Statistics sectoral output data for 2010 were used. The SAM sectors were crop production, other agriculture, crude oil and mining, manufacturing together with utilities and services. The data comprised socioeconomic characteristics (age, income, education, marital status, household size and farm size), labour market activities, Labour Market Participation (LMP), sectoral output (for crop production and other agriculture), skilled and unskilled labour employment. A static Computable General Equilibrium (CGE) model of the Nigerian economy was developed using 12%, 30% and 67% simulated wage increases based on past and proposed wage increases in Nigeria. Data were analysed using descriptive statistics, Gini index, fuzzy sets, ordered probit regression at α0.05 and CGE simulation.

Age of household heads was 50.0±15.5 years, household size was 6.3±3.3 and 2.4% had no formal education. Household heads earned less than the current national minimum wage at N17,060.16±28,950.10 monthly. Agriculture was the primary labour market activity of 57.6% and 58.0% of male and female household heads, respectively. The LMP was 34.0% among the household heads. Wage inequality (Gini index, 0.38) and welfare (fuzzy sets welfare index, 0.12) were low. The LMP by a household head (β=0.16), being single (β=0.05) and having large farm holdings (β=0.02) reduced the probability of having high household welfare. The 2011 SAM showed that crop production constituted 24.0% of domestic output and accounted for 19.5% and 31.2% of skilled and unskilled labour employment, respectively. Other agriculture sector constituted 3.0% of domestic output, as well as 1.5% and 2.4% of skilled and unskilled labour employment, respectively. Skilled labour income from urban formal, urban informal, rural formal and rural informal sectors were 73.1%, 6.9%, 3.9% and 16.1%, respectively. The simulations revealed that with 12% and 30% increases in the minimum wage, the domestic output declined in four sectors by an average of 4.9%, while it increased in the crude oil and mining sector by an average of 0.4%. However, with a 67% increase, domestic output declined in all sectors by an average of 10.1%. All wage increases led to decline in labour employment in rural areas due to higher wages. Most macroeconomic aggregates fell, including GDP by 2.6% and real GDP by 8.5%. The minimum wage policy reduced rural and urban household welfare by 1.3% and 0.9%, respectively.

The minimum wage policy did not improve the welfare of rural household heads and their members in Nigeria.