PANEL ANALYSIS OF TRANSITION DYNAMICS, SCARRING, AND WELFARE IN NIGERIA'S INFORMAL ECONOMY

Understanding the drivers of labour market transitions would go a long way toward addressing problems such as underdevelopment, poverty, and unemployment. Therefore, this study investigates labour mobility within Nigeria's informal economy, which employs 93 percent of the workforce. The study analyses transitions between seven labour market states instead of using the simple formal‑informal split. These seven states are: formal employment, upper‑tier informal wage employment, lower‑tier informal wage employment, own‑account self‑employment, contributing family work, unemployment, and out of labour force. The study uses panel data from four rounds of the General Household Survey (2010–2024) covering 4,847 people. The study estimates transition matrices, multinomial logit models, scarring effects, and fixed effects welfare regressions. The results show that informal employment persists. More than 60 percent of workers remain in the same job category from one survey round to the next. Scarring effects hit lower tier informal workers hard. Their chance of getting a formal job drops from 12.3 percent to 4.2 percent after they stay in lower‑tier work for a long time. When a worker moves from lower‑tier to upper‑tier informal work, household consumption rises by 11.2 percent. Moving from lower‑tier informal work directly into formal work raises consumption by 18.7 percent. Women and rural workers move up less often than other groups. Given these findings, policymakers should help workers move up within the informal sector, act early to reduce scarring effects, and design programmes for rural women. Formalisation alone is not enough.