Average salary in Lagos is 60,000 Naira - and so what?

On Wednesday 14th August, TechCabal published an article written by Faith Omoniyi about a report by PaidHR (formerly Pade) regarding the state of employment in Lagos State Nigeria. The report by PaidHR was analysed by Igwe Ola and it is both interesting and worrying at the same time. Most days, I am the one behind reports but today I want to unpack the report and question (i) its validity; and (ii) its hypotheses. How would I be doing that? First by studying the report itself and conducting relevant due diligence on the insights provided. And then by actually weighing the insights by the two possible camps affected: the employed and the employer.

What does the report actually say?

The first thing any serious person does to any analytical report they read is to understand the methodology because that will tell you if you are reading nonsense and wasting your time or you are actually about to be better than X% of people that don't know what you are about to know. Understanding methodologies are very important because most times, that's where errors are formed. Beautiful insights can be made from very wrong data, and that is dangerous for the real world because scarce resources would follow such erroneous insights.

According to the report, the methodology involved: cluster sampling (for local government areas), simple stratified random sampling (for selecting participants), and structured questions (in English and other languages when relevant). The sample size was about 1500. The confidence level was 95% with a margin error of 4%. For surveys like these, there are a number of ways to know if someone is on the right path. One of such ways is the law of large numbers. As seen in the image below, (William Cochran's) law of large numbers formula allows us to know whether a certain parameter has been met so as not to concoct absolute rubbish in the data. Based on the formula, the sample size and selection by the PaidHR (formerly Pade) is on the right path meaning that their methodology can be trusted. For a Lagos population of approximately 20 million, a sample size between 1,300 to 2,000 is technically ok since increasing the sample size might not really get you to get better insights per se.

Despite this, knowing the Local Government Areas (LGAs) they used is important since it would tell us what kind of Lagos they actually asked such questions. That is, PaidHR might as well get 1,500 people from 3 LGAs when there are 20 LGAs. And even within the 3 LGAS about 70% might be coming from one particular LGA. So you see, data cannot really be trusted until there is absolute transparency. Because I don't really trust people's work until I trust the institution or the person doing the analysis, I had to go deeper. How? So PaidHR have this product called their State of Employed (SoE) calculator which is in v1. I am assuming it feeds into the report as they have the same name. If this assumption is correct then we can deduce certain information from the SoE calculator. The first thing to note from the calculator is that PaidHR is not using LGA Residence for residence despite giving a drop list of LGA residence (and to be fair to them they do say a v2 would soon be live). Technically speaking, there should only be 20 options but as at when I was checking this (around midnight of 15th August) there were supposedly more than 40 LGAs when Lagos State has only 20 (see Annex-1). Without going deeper, it is already clear that there might be issues with this data (assuming that the SoE report is fed by the data from the state of employment report itself.) Another important thing that was not included in the methodology is the periodicity of the data. That is, from which dates did PaidHR conduct the surveys? Based on the report stating the new minimum wage (of 70,000 naira) being after the report, then we can assume the data for this report was collected before July 23rd, 2024.

"Our data is a true representation of employed individuals living and working in Lagos" - PaidHR

But what does the report really say? There are eight conclusions the report provides which are necessary for you including:

1. The average salary in Lagos is 60,000 naira.

2. Men earn more than women. The median male salary is about 70,000 men whilst it was 50,000 for women (which is an income gap of 28.57%). This is even worse when marital status is involved. Married men earn 33% more than married women and divorced men earn 52% more than divorced women. This is to say, from a gender position, that the worst possible financial position for a woman in Lagos is to be divorced.

3. Black tax costs Lagos employees about 20% of their income.

4. According to 58% of the employees, money does not directly affect their work productivity. What actually affects their work productivity is their mental and emotional state of mind which is dissatisfied with their current work environments. In this sense, money is an indirect impact to work productivity which directly impacts the health of employees - health which they need to become more productive for the business. A.k.a vicious circle.

5. 51.2% of employees have multiple income streams but this changes very little as high earners (400,000 naira vs 290,000 naira) alike spend an average of 55.5% of their salary on food.

6. 50-59 year olds have the highest median salary though it is still below 100,000 naira. Only 7% of employees earn above 200,000 naira in Lagos. 78% of Lagosians earn less than 100,000 monthly.

7. Employees set aside an average amount of 5,000 naira for leisure.

8. 75% of employees spend their income on needs alone and only 25% is left for wants and savings. 50% of the reason why employees save is rent.

"Paying the industry standard vs national standard of living"

Knowing the above, the obvious thing to address becomes the low wages by employees. That 78% of people earn less than 100,000 naira is troublesome. This is worse off when you consider that people only have an average of 5,000 naira left to spare after taking out essential needs. From the business side, this is a big challenge to tackle as it evidently shows that, except in the food and retail sector, selling to Lagosians is going to be very difficult because they just cannot afford to pay. Nationally speaking, the World Bank Findex report (visualised below) also clearly shows that all type of Nigerians borrow a lot of money (more than half of richest 60% and poorest 40%).

As an employer, this creates a distasteful vicious circle as it becomes very difficult to motivate people to work harder because they are already very unmotivated. And it becomes hard to create the proper incentives because the resources are too scarce as revenues might not be at its best financial year (for the FY 2023 & 2024). Pragmatically, the approach to take here is to reduce cost even more without cutting down workforce (a near-miracle to achieve) or to source for better paying customers for your products. In either case, it is very difficult. As an employee, it would definitely look like employers do not understand the situation you are passing through making the workflow dynamic and environment much more complicated than before.

What exactly should we do with this information?

Technically speaking, what this report reveals is that Lagosians are very broke relative to the cost of needs and wants in the market. People do not have the money to pay for things. And this is in an economic environment when prices of needs and wants are also inflating monthly. My key takeaways from this report are that:

• Selling to Lagosians is fighting for their 5,000 naira, except in the food/FMCGs sector because those are the real needs. Selling "needs" is technically how to know you would have reoccurring customers in Lagos.

• The marital status of your Lagos customers matters. Being married or divorced increases your financial cost, relative to being single. The worst scenario is being divorced and a woman in Lagos.

• It is really about market creation at the end of the day. Market creation is the baseline for an entire new dynamic of value creation which attracts more capital and spurs economic activity from out of no-where (nearly). Market creation just means being able to provide simple and better services for customers that might not have realised that they needed what you are offering.

Annex

1) SoE Calculator Residences Proof