The recent increase in Nigeria’s minimum wage has sparked discussions on its potential impact on alleviating the country’s current economic hardship, with the World Bank cautioning that the wage hike will only benefit a limited segment of the population.
During the launch of the Nigeria Development Update (NDU) report in Abuja, Alex Sienaert, the World Bank’s lead economist for Nigeria, highlighted that while the increase is significant, it will primarily benefit formal wage earners, impacting only about 4.1% of working-age Nigerians.
The new N70,000 monthly minimum wage adjustment, which aims to improve the livelihoods of Nigeria’s workforce, faces significant limitations in its reach and impact – and has been deemed insufficient.
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According to Sienaert, the direct benefits will be minimal as the policy mainly targets formal sector workers who are already in the minority. This concern is compounded by Nigeria’s labor market structure, where the majority of workers are engaged in informal or self-employed jobs that are not directly affected by wage legislation.
Elaborating on these limitations, the World Bank’s report pointed out that policies like minimum wage hikes and public sector wage reforms tend to bypass the poorest workers. It states, “Policy initiatives that cover only highly-formalized wage jobs – including policies focused on public sector workers and minimum wage legislation – may not reach many of Nigeria’s poorest workers directly.”
It added that given that formal wage jobs are scarce, especially among poorer households, the direct effects of such policies on poverty reduction are restricted.
Nigeria’s labor market is characterized by a high rate of informal employment, which poses a challenge to wage policy effectiveness. Recent data from the National Bureau of Statistics (NBS) revealed that 92.7% of Nigeria’s employed population is engaged in informal work, underscoring the economy’s heavy reliance on unstructured job roles.
Dr. Tope Fasua, Special Adviser to the President on Economic Affairs, corroborated these findings, noting that only about 7-8% of the working population is under wage employment controlled by the National Labour Congress (NLC).
The NDU report further stated that public sector wage jobs not only account for a small fraction of employment opportunities but are also predominantly occupied by relatively well-off Nigerians. These positions offer higher pay compared to private sector jobs, even when accounting for individual qualifications.
This disparity suggests that public sector jobs are difficult to access for the economically disadvantaged, creating barriers that perpetuate income inequality.
A critical issue highlighted in the report is the enforcement of minimum wage legislation. Even among wage earners in the private sector, compliance with the official minimum wage is inconsistent.
Approximately one-third of private sector employees reportedly earn less than the minimum wage, indicating that the policy’s effectiveness is hindered by imperfect enforcement mechanisms. This gap in enforcement limits the policy’s ability to uplift the poorest workers who may not hold formal wage jobs or benefit from minimum wage protections.
Furthermore, the World Bank cautioned that increasing wages, particularly in the public sector, could place additional strain on Nigeria’s already stretched public finances.
The country has faced fiscal challenges due to high debt servicing costs and dwindling revenue, making it crucial for policymakers to consider the financial sustainability of wage increases. Sienaert emphasized the need for broader employment policies to effectively reduce poverty, as simply increasing wages for a select group will not address the underlying structural issues in the labor market.
The Need for Productive Job Creation
The World Bank’s report calls for a shift in focus from merely expanding employment to creating more productive jobs that provide sustainable livelihoods. It points out that employment alone does not guarantee an escape from poverty, as many jobs, particularly in the informal sector, are not productive or remunerative enough to lift individuals above the poverty line.
The report states, “Many jobs are not productive and therefore remunerative enough to afford a life beyond poverty.”
According to recent labor market statistics, 84% of Nigeria’s working-class population was self-employed as of the first quarter of 2024, representing a decline from 87.3% in the third quarter of 2023. While this shift indicates a slight reduction in self-employment, it also denotes that the vast majority of workers remain outside formal wage employment. The implications of this trend are significant, as the predominance of self-employment often underlines the scarcity of structured job opportunities and can be associated with lower income levels and job insecurity.
This situation underscores the World Bank’s concern that policies focused on formal wage earners are unlikely to have a widespread impact on poverty reduction. With a significant portion of the population working in the informal sector, many Nigerians remain vulnerable to economic shocks and unable to access the benefits associated with formal employment, such as social security, health insurance, and other labor protections.
An African Development Bank (AfDB) report echoes the World Bank’s findings, noting that about 34.3% of Nigerian workers aged 15 and older live below the poverty line despite being employed. This “working poor” phenomenon is largely attributed to low-skilled and low-wage jobs that fail to provide adequate income for a decent standard of living.
The Nigeria Country Diagnostic Note (CDN) 2023 further highlights that many workers are trapped in poverty due to the nature of their employment, which often lacks productivity and offers limited opportunities for upward mobility.
The data paints a stark picture of the labor market’s structural deficiencies, indicating that even significant wage hikes will have limited impact unless accompanied by comprehensive labor market reforms. Experts have advised that the reforms should aim to improve skill acquisition, facilitate access to higher-paying jobs, and foster sectors with the potential to absorb large numbers of workers into productive roles.