Determinants of Occupational Choice in Nigeria: A Multinomial Logit Model

Abstract

It has been observed that for almost three decades following the introduction of Structural Adjustment Programme (SAP) in Nigeria, efforts by the government to set in motion private sector driven economy had not yielded much. There is also much disparity between labour force and employment. This study therefore uses the Multinomial Logit Estimation Techniques to investigate the determinants of occupational choice, and possible gender influence on choice using the 2008 Nigeria Household Survey (NHHS) data set. The aim of this study, therefore, is to achieve effective labour utilization and robust labour related economic policy guide in Nigeria by adopting the result findings. The study finds among other things that whereas individuals at all levels of education prefer wage employment at the public and private sectors, those with low education especially at the primary and secondary school levels appear to be predisposed for self-employment relative to those at the other levels. At the primary school level 40.5% of individuals prefer to be self- employed,  while  at  the  secondary,  college  of  education,  university  (1st degree), and beyond 1st  degree level, 17.1%, 8.6%, 3.7%, and 0% were recorded respectively. Another important finding is that male workers earn on the average more than female workers by 24.2% and 6.3%, in self-employment and public sector employment respectively, while females earn on the average earn more than males by 11.7% in the private sector. The study shows that there is no significant gender difference in the choice of  employment in  Nigeria; however,  differences  in  domestic and  socio- cultural divide between the sexes seem to be instrumental to differences in labour mobility, earning differential, and the seeming apathy of being self- employed by females. Females are also less likely to choose the private sector employment relative to males.

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

Labour  allocation  in  households  and  the  corresponding  employment  (occupational) choice of the household member is a dynamic process influenced by various factors. Questions such as labour allocation and employment choice are difficult to study without a thorough understanding of the microeconomic behaviour of households (Juvancic and Erjavec, 2003).

“It is essential to examine what factors determine the demand and supply of labour within the households, and how the interactions between these factors act”. The authors further stated that there is no uniform classification of factors that influence decisions on labour allocation and subsequent occupational decisions of individuals. Adolescent occupational choice  is influenced by many factors, including  life context, personal aptitudes, and educational attainment.

The  occupational  choice  of  individuals  determines  their  supply  of  labour  and  the interplay of demand and supply of labour equilibrates the labour market all things being equal.

Labour markets in developing countries are likely to be heterogeneous in the sense of having segments that differ in terms of the factors affecting entry and earnings. One potentially important  distinction  is between self employment  and  wage employment; another is between the private sector and the public sector (Glick and Sahn, 1997).

Labour market in Nigeria like in any other developing country is dualistic in nature as it is composed of formal and informal sectors. The formal sector is made of wage employment in the public and private sectors while the informal sector is composed of rural and urban informal and intermediate sector.

The Nigeria labour market has also been described as a composite one, which contains a multitude of labour markets. This characteristic feature of the nation’s labour market is said to reflect the “institutional market” model wherein the policies of unions, employers and government are substituted for the traditional action of the market forces as the significant factor in wage movements (Okoroafor, 1990). The nation’s labour market has equally been characterized as being market-specific (by region), highly immobile and political, and these features have been argued to make the market suffer some disequilibrium (Aminu, 2008).

In the context of declining growth and economic restructuring, the employment situation in Nigeria has become critical and labour absorption problematic (Echebiri, 2005). According to Chukuezi (2010), “In the recent times, there have been increased attention focused on trends in domestic or household labour patterns and the gender participation and  contribution”  in  Nigeria.  The  author  states  that  the  impetus  for  this  increased attention stems in part from other trends which focus attention on possible associated changes in the way men and women organize their household responsibilities. In other words, the expectation has been that changes in patterns of family formation and dissolution, in conjunction with the changing gender distribution in paid work, would lead  to  changes  in  the  distribution  of work  between  men  and  women  in  the  home (Chukuezi, 2010).

One fundamental development in the Nigeria’s labour market in the last decade has been the public sector down-sizing programme. The Federal Government contemplated a sort of drastic reduction of its workforce in 2001 to make public sector leaner and more effective in service delivery. The reduction in the public sector workforce at the federal level has not been easy to implement either due to its fiscal implications or the socio- political problems that such a programme can wreak on the country (Aminu, 2010). Given the criteria for the mass retrenchment in the nation’s public sector, there is no doubt  that  the  exercise  must  have  affected  and  will  still  affect,  to  a  large  extent, employees at the lower rungs of the ladder and those with little or no requisite education to enter any other segment of the formal labour market in some meaningful way (Aminu, 2010).

The down-sizing exercise would definitely decrease the labour demand in the public sector wage employment, thus throwing the affected household members back into the already saturated labour  market. The affected ones become temporarily unemployed, creating an alternative occupational choice environment for them.

A recent, yet interesting feature of informal labour market that prevails in the public sector setting in Nigeria is what we wish to call “stakeholders share”. This market has taken an alarming prominence in states and local governments across the country. An arbitrary number of vacancy units are allocated by Chief Executives at those levels of government  to  “Powerful Politicians and  Public  Office holders”.  Some call  it  ‘real- democracy dividends’  while  others  say  it  revolves  around  maintenance  of  ‘political structure’. The employees are not given any letters of engagements, however, they collect monthly stipend which may be fixed or which may vary depending on how ‘active’ the individual employee has performed for the month.

In Nigeria, household members’ decision of what occupational choice to make, prompt them into either the formal or informal sectors of the market. There usually exist barriers to outwards movement from informal to formal markets, and this sometimes take the form of outright discrimination against specific groups, as well as recruitment practices that emphasize skill, experience and stable work histories and prerequisites that poor job seekers can rarely satisfy (Schiller, 1989).

The informal labour market is usually associated with low wages, low productivity jobs, temporary activities, sometimes clandestine employment, unsafe labour conditions, and no protection under labour legislation (World Bank, 1997). Unlike the informal labour market, the formal labour market is characterized by higher wages, an organized workforce, higher skill requirement and opportunity for upwards mobility.

1.2     Research Problem

Since the introduction of the Structural Adjustment Programme (SAP) in the 1980s, a litany  of  other  macroeconomic  and  sector-based  policies  has  been  implemented  in Nigeria to contain specifically the problem of unemployment. Prominent among these policies are Foreign Technical Aid Scheme, Small and Medium Enterprises (SME), Back to Land Program, National Directorate of Employment (NDE), National Poverty Eradication  Program (NAPEP),  National  Economic  Empowerment  and  Development Strategy (NEEDS). According to Okojie (2003), the programmes’ major problems are inadequate funding,  lack of business ideas and  experience of the participants of the schemes to run personal businesses, and that the modus operandi for involving several organizations such as banks, trainers, etc, was not properly worked out.

Table 01: Some Anti-poverty programme by the Government of Nigeria

It has therefore become expedient to focus attention not only on how often government programmes are rolled out and sometimes ‘abandoned’ mid-way, but on what influence individuals’ occupational choice. This is pertinent since ‘previous government effort over the years to encourage private sector driven economy have not achieved much’ (Ogwumike, 2007). Therefore, understanding the choice behaviour of the individual is critical.

It has also been observed in literature that notwithstanding steady rise in employment in Nigeria, there is still persistent employment problem (Kareem 2009). There is evidence that labour supply has increased marginally over the past 3 (three) decades. Labour force increased from 25.7 million persons in 1980 to 33.9 million persons in 1990 and further increased  to  45  million  and  52.7  million  persons  in  2000  and  2006,  respectively  ( Kareem, 2010).

In addition to this, statistical evidences from the government show that the absolute number of total employment in the country has been steadily increasing since 1980. For instance, total employment increased steadily from 18.6 million persons in 1980 to 22.1 million in 1990, which further rose to 27.5 million in 2000 and later to 34.4 million in 2006(Kareem, 2010). However, a comparison of the later (total employment), to the former (labor force) show large and increasing disparity of 7.1million, 11.8 million, 17.5 million, and 18.3 million persons respectively, over the periods.

Surprisingly, this large and increasing unemployment gap has persisted over such a long period of the nations’ life that effort towards determining the choice behaviour of individual’s occupation should be urgently investigated in order to help stakeholders in the economy fashion out policy guide that will checkmate this trend.

Table 02: Trend in Labour Market Characteristics

This Table shows a five year average trend in labour market characteristics in Nigeria from 1981 to 2006.

Analysis of the trend  in the Nigeria  Labor  market on Table 02  shows a disturbing scenario. There is evidence that in the last three decades, the five year average show sharp and unabated rise in the disparity between active population and labor force on one hand, and between labour force and employment on the other. The former shows increasing disparity of 8.4million, 10.8million, 13.2million, 16.2million, and 18.4million persons respectively; while the later exhibit similar disparity of 20.2million, 21.6million, 23.7million, 26.5million, and 30.9million persons respectively. The import of these analyses is a condition of ineffective and unabated labour under utilization in Nigeria.

With the population of Nigeria estimated at about 140 million by the National Census 2006, also, considering its huge manpower base and enormous natural resource endowment, it becomes pertinent that understanding why the labour force  (age between 15-65years) makes certain decisions concerning occupational choice has become of increasing research issue.

From this study, it is expected that answers would be given to questions as to whether the failure of governments’ private-sector-led economic programmes are due to the programmes’ specific conditions, or whether the inability of firms to update the demand structure of the labour market due to factors other than costs; or is it issue of microeconomic behaviours of individuals, or is it due to macroeconomic environment or the issue that bothers on regulatory initiative in the Nigeria labor market? These and many other questions beg for answers.

It is important to consider the occupational determinants of individuals on private, public, and self-employed sector employment in other to provide government, policy designers, and other stakeholders, with a complete picture of what factors determine choice behaviour of individuals and why such choices are made. We hereby wish to fill these gaps in empirical study.

Based on the foregoing, the following research questions become necessary: Does an individual’s socio-economic and demographic characteristics determine that individual’s occupation choice in the labour market? Is there significant gender difference in the choice of occupation and what factors explain these differences?

1.3     Objectives of the Study

The broad objective of this study, following the research question is to ascertain the determinants of occupational choice in Nigeria.

Specifically; the study:

–           investigates    whether    an    individual’s    socio-economic    and    demographic characteristics determine that individual’s occupational choice,

–           investigates if there is significant gender difference in the choice of occupation, and;

–           determines factors responsible for differences.

1.4     Research Hypotheses

Based on the foregoing objectives, the following research hypotheses would be tested:

H0:      There  are  no  socio-economic  and  demographic  characteristics  that  determine individual’s occupational choice in the labour market in Nigeria.

H0:      There are no significant gender differences in the choice of occupation, and,

Ho:       No factor(s) explain differences in occupational choice by gender.

1.5     Scope of the Study

The scope of this study shall be based on Nigeria’s Household Survey 2008. Other relevant information from the Central Bank of Nigeria (CBN), Office of National Population Commission and Federal Office of Statistics may be explored and exploited to strengthen our database.

1.6     Justification of the Study

The intended policy of private-sector driven economy may not be achieved if a holistic determinant of occupational choice is not thoroughly investigated. Attempts made in previous works to handle this very important macroeconomic goal of full employment and  by  extension  determinants  of  employment  choice  have  not  given  a  clear  and complete picture. Therefore, the cardinal aim behind this work is to achieve effective labour utilization, and robust labour related economic policies through determinant of occupational choice of the individual. The study would also attempt to assess whether the influence of occupational choice on gender is significant. We also hope that this study would ignite further research exercise on areas not covered by us or areas of improvement on our study.

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