CHAPTER ONE

BACKGROUND OF THE STUDY

1.1 Introduction

One of the most persistent questions in labour economics concerns the pattern of wage differentials between industries and sectors. Economists have found a striking regularity in wage dispersion within and between countries, even after wages are adjusted for differences in human capital, occupation and other characteristics. These findings suggest that wage differentials are compatible with the way capitalist economies actually operate, and they cast doubt on the adequacy of purely competitive theories. The competitive model assumes that employers take wages as given, but when jobs offered by different employers are not perfect substitutes in workers' eyes, employers gain wage-setting power. In a meta-analysis of 53 studies, Sokolova and Sørensen (2021) show that labour markets appear less competitive in developing countries than in the United States, Canada and Australia, and they suggest that institutions such as minimum wages, unions and fairness norms may restrain the wage-setting power that employers would otherwise exercise. Alongside competitive arguments, segmentation arising from efficiency wage models has become central to explaining wage differentials.

The level of earnings varies with human capital, innate ability, the nature and conditions of the job, non-wage benefits, location and other factors. Unexplained wage gaps arise when two people with equal ability and skills do similar jobs but are treated differently by the employer. This unequal treatment can take many forms, including wages, job assignments and promotions, but this study deals only with wage gaps. Such gaps have consequences for equity, morale, labour mobility and the quality of public service.

Research on wage determination in developing countries has concentrated on the effects of human capital and of segmentation associated with institutional arrangements and structural characteristics. In Nigeria, disparities in public sector pay can be traced to the federal arrangement introduced by the 1951 Macpherson Constitution, under which regional governments handled wage matters through their own review commissions, and pay levels reflected differences in the budgets of the various governments. The disparity persists today. A study of the Nigerian public service found a very large pay gap and a highly discriminatory wage structure, which the author warned could lead to industrial disharmony and weaken public service stability and performance (Ashiru, 2019). A study of civil servants in Kwara and Oyo States similarly found that bureaucratic and economic factors worsen compensation inequalities, and that inadequate wage review procedures demotivate and dissatisfy workers (AbdulRasheed, Adegoroye & Amin, 2026).

The 2024 national minimum wage illustrates the point. After the ₦70,000 National Minimum Wage Act was signed in July 2024, replacing the ₦30,000 benchmark, implementation proceeded at very different speeds. A month after the signing, only a few states had begun paying, many had merely set up implementation committees, and the absence of an agreed consequential adjustment template held up full-scale implementation (Leadership, 2024). By April 2026, the amounts approved by states ranged from the national benchmark to well above it. Lagos and Rivers had approved ₦85,000, Kano ₦71,000 and Nasarawa ₦70,500, while Imo had begun paying ₦104,000 (Nairametrics, 2026a). Bayelsa and Enugu, two of the states covered by this study, were reported to be paying ₦80,000 (BusinessDay, 2024). Federal government workers, for their part, received a ₦40,000 consequential adjustment (Nairametrics, 2026b). Workers in different states and tiers of government therefore receive different salaries and fringe benefits, largely according to what each government says it can afford.

Wage differentials in the Nigerian public service are thus determined largely by the degree to which institutional forces limit the influence of market forces. Wages vary more from place to place than the cost of provisions does, which implies that pay does not depend solely on prices of goods and services, although today union negotiations are conducted with an eye to inflation.

Fairness matters to workers. People are attached to a sense of equity, and an employee expects effort to be rewarded by pay regarded as fair, while the employer expects in return an effort regarded as fair. Efficiency wage models of the gift-exchange type hold that workers who give more than the minimum standard effort expect to be paid above the reference wage, and that considerations of fairness lead employers to offer relatively high wages to benefit from this exchange. Each worker then chooses the level of effort that maximises his or her satisfaction. Where compensation is perceived as unfair or inadequate, motivation suffers. In the Ogun State civil service, for example, the compensation system was found insufficient to meet employees' basic needs, which led the authors to advocate a comprehensive approach to motivation that includes non-monetary factors (Oladejo & Saka, 2024). Public service motivation also matters: Oladimeji and Abdulkareem (2023) found that it has a significant effect on the job performance of Nigerian federal civil servants, so pay policy should be considered together with the intrinsic motivation of public servants.

Labour mobility is the degree to which workers are able and willing to move between jobs, occupations and areas. A lack of mobility may show up as frictional or structural unemployment, and policy has often sought to encourage workers to move to where jobs are available. In practice, labour may be geographically and occupationally immobile for many social and economic reasons, and an itinerant population carries social costs such as regional overcrowding or depopulation. In Nigeria, mobility in the public sector is pronounced, with workers switching between state and federal service for reasons connected to pay and conditions. Labour turnover, defined as the number of employees who leave a firm in a year as a share of its total employment, affects both workers and organisations. Workers face disruption and must acquire new job-specific skills, while organisations lose skills, suffer disruption and bear the cost of hiring and training. Incoming workers may be better educated or more enthusiastic than those who leave. Research in the Nigerian public sector finds that employees tend to define commitment by the personal benefits they derive from the organisation and that weak scrutiny and accountability are associated with low turnover intention (Pepple, Akinsowon & Oyelere, 2023), which suggests that pay disparities may not translate into exits as readily as theory would predict. In economic theory, turnover is explained mainly through efficiency wage models, in which firms choose wages to balance the marginal cost of higher pay against the marginal saving in training costs that higher pay brings.

Preferences of employers and workers may also be a source of discrimination, which is a situation in which individuals who are identical in productive ability are treated differently because of non-productive characteristics. A classic argument from the theory of imperfect competition is that a single buyer of labour, a monopsonist, sets wages below the marginal revenue product of labour, and that the less elastic the labour supply, the lower the wage relative to productivity. By differentiating wages between groups with different supply elasticities, the monopsonist can raise profits. Gender is one dimension along which this can occur: if female labour supply is more inelastic than male labour supply, women earn less relative to their productivity. Recent search-theoretic work extends the idea by showing that each firm faces its own labour supply curve, because workers quit and must be replaced, and the higher the wage, the fewer the quits and the easier it is to recruit. Evidence from Nigeria shows that gender gaps are real. Orji and Nwosu (2024) found a significant gender wage gap in favour of men at all points of the wage distribution, with a larger gap at the bottom than at the top, which is evidence of a sticky floor. Most of the gap was attributable to the wage structure and not to differences in worker characteristics, although unionisation, education and public sector employment were among the factors that reduced the gap. Ekpeyong (2023) likewise found gender wage disparities in both the private and public sectors. These findings are consistent with the view that wage differences by gender narrow where collective bargaining plays a larger part in wage determination.

Government is the major, and sometimes the sole, employer of certain categories of workers, such as the military, police, firefighters and postal workers. The demand for these workers is derived from society's demand for the public goods they provide, and when government employs workers it absorbs economic resources. How much to pay is therefore in the hands of government. Government pays wages from the revenue it generates through taxation, borrowing and grants, and pay does not necessarily depend on workers' productivity but largely on welfare considerations. Wages vary among government employees according to the funds available, and how much a state in Nigeria pays depends on what it has at its disposal. It should nonetheless be noted that wages backed by law must be paid whatever the state of government resources.

Several theories help to explain why pay differs. Human capital theory holds that education makes individuals more productive in ways valued by the labour market, but investment in human capital is itself affected by how quickly people learn, their aspirations and expectations, and their access to finance. The hedonic theory of wages explains wage heterogeneity through compensating differentials, so that competition rewards workers who accept the most tedious or risky jobs and allocates workers across jobs in a socially efficient way. To measure the size of a wage differential or of discrimination, a common strategy is to explain wages by individual characteristics (education, experience, sex, age, dependants, union status) and job characteristics (risk, working environment, location) and then to examine the part linked to membership of a particular group. The unexplained remainder is associated with statistical discrimination, in which people of identical ability who belong to different groups have different career paths because of the average quality, real or imagined, of the group to which they belong. In many cases returns are determined in imperfect markets where institutional factors such as conventional salary structures, family connections, social status, sex and race play a significant role, so that status considerations and connections, instead of marginal product, may decide who gets a job and how much it pays.

Finally, the question of how much to pay public employees without reducing their public service motivation is a complex one. Public servants are often thought to be less motivated by wages than their private sector counterparts, although pay satisfies both lower and higher order needs and signals recognition for effort. It has been argued that public sector unions exploit the relatively inelastic demand for public services, since governments supply them as monopolies. Others reject the claim of extraordinary bargaining power on four grounds: governments face tax and budget constraints that discipline them as market demand does in the private sector; people unhappy with the level of public services can move elsewhere; workers providing essential services are generally forbidden to strike; and strikes by public workers do not cut off the flow of revenue to government. On this view, what is distinctive about public sector unions is the political nature of public sector bargaining, and not the elasticity of labour demand.

1.2 Research Problem

Public policy increasingly relies on empirical research, so policy makers should be supplied with robust estimates on which to base decisions that affect public welfare. Policies and guidelines of central and state governments coordinate and control the activities of the nation with the objective of maximising growth, and pay policy is part of this.

The employment effects of a national minimum wage have long been debated. Standard economic theory predicts a fall in employment, hours worked or both if the minimum wage raises pay above the value of workers' marginal product. Employment of minimum wage workers might also fall if employers substitute workers who have reduced or no entitlement. Theory also predicts that in some circumstances employment will rise, because a legal minimum can override an employer's monopsony control of wages, attract more workers into employment and reduce voluntary turnover and unfilled vacancies. This is consistent with the evidence that institutions such as minimum wages can restrain employers' wage-setting power (Sokolova & Sørensen, 2021).

In Nigeria, public and civil servants' pay has been reviewed through successive national minimum wage reviews by the Federal Government, in 2011, 2019 and 2024. Each review has produced conflict between labour unions and governments over implementation of the agreed wage. State governors typically argue that they lack the funds to pay, and the 2024 review followed the same pattern. A month after the ₦70,000 wage was signed into law, most states had yet to take serious steps to implement it, and the lack of an agreed consequential adjustment for higher salary grades further delayed implementation (Leadership, 2024). The 2024 Act also shortened the interval between reviews from five years to three (Nairametrics, 2026b), so the question of how federal and state pay relate to each other will arise again soon.

Wage differentials are not new in the labour market. They exist in advanced and less developed societies alike because of heterogeneous workers with different innate abilities. In Nigeria there is wage disparity across the federation, and many of the variations are equilibrium or transitional wage differentials. Different salary structures exist in the tiers of government and within ministries, creating disparities between employees in different sectors of the economy. The sources of these differentials, and how they can be reduced, are complex. The existence of different salary structures across tiers of government is not necessarily based on labour productivity. It reflects, to some extent, professionalism, conditions of service, the demanding nature of some jobs, political interests and service to humanity. Disparities across states reflect differences in resource base and productivity and in workers' characteristics, and they can lead to transfers of service from state to federal service and the reverse. The response of the log of earnings to education, salary grade level (a proxy for experience) and other variables shapes the formation of wage differentials in the public service. The size of the differences among public servants is, however, not well defined, whether across cadres, between sectors of employment, between states, or between tiers of government.

Legislated minimum wages have therefore generated controversy, including labour turnover linked to pay differences, across regions of the public sector. This study accordingly seeks to answer the following research questions:

1. What is the level of wage differential by gender across the various cadres of manpower?
2. What is the level of wage differential between federal and state workers?
3. What is the impact of wage differentials on labour turnover between federal and state government employees?
4. What is the level of wage differential by sector of employment between federal and state workers?

The study rests on three assumptions: jobs are heterogeneous, workers are heterogeneous, and the Nigerian labour market is imperfect.

1.3 Objectives of the Study

The broad objective of this study is to determine the level of wage differential among civil servants in the two tiers of government (federal and state, with an inter-state analysis) in Nigeria. The specific objectives are to:

1. examine the level of wage differential by gender across the various cadres of manpower (high, middle and low levels);
2. examine the level of wage differentials between federal and state workers;
3. examine the impact of wage differentials on labour turnover between federal and state employees; and
4. examine the level of wage differential based on sector of employment.

1.4 Significance of the Study

The existence of different salary structures in the public service is a matter of growing concern. It has produced a high degree of disparity in public servants' wages and salaries between and within ministries and parastatals across the federation, and between tiers of government, without a well-defined wage gap. Existing studies have documented pay gaps in the public service (Ashiru, 2019), examined salary disparities in two states (AbdulRasheed et al., 2026) and analysed gender gaps in the labour market as a whole (Orji & Nwosu, 2024). To the best of the researcher's knowledge, however, few studies have measured the degree of variation in wages among public servants across federal and state governments and across states from every geo-political zone. The emphasis on economic inequality in wage earnings makes this study distinctive. It aims to provide a defined measure of the wage gap in the public service at different quantiles.

Researchers will find the work a source of literature for further study. Policy makers will find it a guide for reviewing policies on human resource management, in particular labour turnover management, with a view to promoting productivity and efficiency in the public service, and a tool for addressing the problem of multiple salary structures. The private sector will also benefit, because any government pronouncement on a new minimum wage has implications for workers throughout the economy, and understanding it can help to avoid wage distortion and price increases in the various regions of the federation. The study also adds to the stock of literature in labour economics and offers a policy tool for addressing gender discrimination, labour turnover management, sector appraisal and bureaucratic examination of the civil service in the interest of labour efficiency.

1.5 Scope of the Study

This research focuses on the Nigerian civil service at two tiers of government, federal and state. The data of interest are those for employees in the health sector (primary health workers and nurses), the judiciary, the education sector (secondary institutions and boards) and other ministries and parastatals, which will be selected at random. Nigeria is made up of six geo-political zones, and the study is delimited to six states, one from each zone: Bayelsa (South-South), Enugu (South-East), Kebbi (North-West), Kogi (North-Central), Ogun (South-West) and Jigawa (North-East). These states were chosen for reasons of cost minimisation, ease of access to data, the political and economic situation and time management.

References

AbdulRasheed, H. B., Adegoroye, A. A., & Amin, A. (2026). Salary disparities within the civil service and its impact on worker performance: An examination of Kwara and Oyo States in Nigeria. Malaysian Management Journal, 30, 46–61. https://doi.org/10.32890/mmj2026.30.3

Ashiru, A. O. (2019). Compensation practices in the Nigerian public service: Analysis of wage differential. Journal of Administrative Science, 16(1). https://ir.uitm.edu.my/id/eprint/48649

BusinessDay. (2024). 20 states begin payment of new minimum wage. https://businessday.ng/news/article/20-states-begin-payment-of-new-minimum-wage/

Ekpeyong, P. (2023). Gender pay gap and employment choice in Nigeria (MPRA Paper No. 118315). University of Munich. https://mpra.ub.uni-muenchen.de/118315/

Leadership. (2024, August). Workers to wait long for new minimum wage payment. https://leadership.ng/workers-to-wait-long-for-new-minimum-wage-payment

Nairametrics. (2026a, May 1). Minimum wage 2026: What every state in Nigeria pays. https://nairametrics.com/2026/05/01/minimum-wage-2026-what-every-state-in-nigeria-pays/

Nairametrics. (2026b, November 8). NLC denies negotiating N40,000 consequential adjustment for federal workers. https://nairametrics.com/2026/11/08/nlc-denies-negotiating-n40000-consequential-adjustment-for-federal-workers/

Oladejo, S. Y., & Saka, A.-A. A. (2024). Compensation system and employee motivation in the public sector: A case study of Ogun State civil service. Management of Organizations: Systematic Research, 91(1), 89–114.

Oladimeji, K. A., & Abdulkareem, A. K. (2023). Unraveling the link between public service motivation and job performance: An empirical investigation in the Nigerian public service. Wayamba Journal of Management, 14(2), 138–152. https://doi.org/10.4038/wjm.v14i2.7611

Orji, A., & Nwosu, E. O. (2024). Analysis of gender wage gap and the Nigerian labour market: A new empirical evidence. International Journal of Manpower, 45(5), 926–957. https://doi.org/10.1108/ijm-11-2022-0549

Pepple, D. G., Akinsowon, P., & Oyelere, M. (2023). Employee commitment and turnover intention: Perspectives from the Nigerian public sector. Public Organization Review, 23(2), 739–757. https://doi.org/10.1007/s11115-021-00577-7

Sokolova, A., & Sørensen, T. (2021). Monopsony in labor markets: A meta-analysis. ILR Review, 74(1), 27–55. https://doi.org/10.1177/0019793920965562