Services sector: A potential “escalator” for employment growth

A principal link that economic growth is transmitted to the populace is the number of employment it creates. As a nation’s population grows, more people will require work in order to support their families and themselves.

Thus, economic growth is necessary to employ all those who are in need of gainful employment. However, when economic growth does not match population growth, unemployment remains stubbornly high. This is the case with Nigeria since it exited recession in 2017.

The economic slump witnessed in 2016 caused many job losses, which was evident in the employment elasticity of -0.6 for the broad economy, implying negative employment growth. The contraction in employment at the time was led by the services sector, with an employment elasticity of -1.9. We recall that some notable banks and e-commerce companies, which fall under the service sector, downsized in 2016.

Following economic recovery in 2017, employment growth in the services sector has recovered more strongly than other sectors with employment elasticity of 0.9 and 0.8 in 2017 and 2018 respectively. Over the last three years (2016-2018), the sector has seen an average growth of 0.7% in employment without any significant increase in the sector’s real output.

This is perhaps due to the fact that the jobs were created in the less productive traditional services sub-sectors such as transport (1% of real GDP in 2018), where the scope to increase productivity is low.

In our opinion, tackling the high unemployment situation and reducing poverty will require creating more jobs that are capable of boosting income levels. The services sector, as shown by the high employment elasticity, has the highest propensity to create jobs compared to other sectors probably because services are less reliant on physical infrastructure.

However, more jobs will need to be created in higher productivity service sub-sectors like trade, telecommunications, real estate, financial and professional services, which require specialised skill sets. Additionally, enhancing productivity in service sector requires a significant investment in human capital development through investment in tertiary education to provide high-skilled workers in modern services.

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