The Growth Of Nigerian Economy And Unemployment

Project and Seminar Material for Economics

Project and Seminar Material for Economics

Chapter One


1.1 Background of the Study

Unemployment has been one of the most persistent and un-manageable problems facing all industrial countries of the world. It has been noted as a macroeconomic and social problem.

In October 1982, the 13th International Conference of Labour Statisticians adopted a new resolution concerning the statistics of the economically active employment and unemployment, they defined unemployment as persons above a specified age who during the reference period were without work including the unemployed graduates, school leavers, home makers and other persons mainly those engaged in non-economic activities who are at the same time seeking for work and are available for work.

The term unemployment could be used in relation to all the factors of production with reference to labour. Unemployment produces both economic and non-economic costs. This cost differs from individuals and societies.

For individuals most economic cost of unemployment is loss of income that the persons would have received if employed. For the societies it is the goods and services that would have been produced by the unemployed.
Non-economic cost is found among unemployed persons who experience anxiety, depression and loss of self esteem. A rise in unemployment rate is associated with high incidence of alcoholism and drug abuse as well as increase in crime and suicide rate, high rate of family divorce and incidence of child abuse.

The basic economic cost of unemployment is foregone output when the economy fails to create enough jobs for all who are able and willing to work; potential production of goods and services is greatly lost thus unemployment is a waste of manpower.

Economic growth leads to a lower unemployment rate; Okun’s law indicates that every 1% point by which the actual unemployment rate exceed the natural rate a negative GDP gap of about 2% decline in real GDP below its productivity GDP occurs.

According to Briggs (1973) unemployment is the difference between the amount of labour employed at current wage rate and working conditions, and the amount of labour hired at these levels.

However, Gbosi (1997) defined unemployment as a situation in which people who are willing to work at the prevailing wage rate are unable to find jobs. Unemployment is as a result of the inability to develop and utilize the nations manpower resources effectively especially in the rural sector (Fadayami, 1992; Osimubi, 2006).

In another view of Jimaza (2001) defined it as a situation whereby one has no job and is prepared to take a job at the ongoing wage rate but such job is nowhere to be found.

A rise or fall in wage rate depends on the level or variation in the unemployment rate, the amount of unemployment in an economy is measured by unemployment rate which is the percentage of civilian labour force consist of people between 18years of age or older who are unemployed or employed. People not included in the labour force are college students who do not have job and are looking for jobs; it is possible that an increase in current unemployment rate alters the long-run equilibrium of unemployment rate for instance certain unemployed persons may be excluded from the labour market because their productivity is too low to make it profitable to hire them even at a much lower wage rate than the current one.

The controversy over the problem of unemployment revolves around the distinction between voluntary, involuntary, visible and disguised unemployment.

However, voluntary unemployment is said to occur when persons choose not to work or accept job for which they are qualified at ongoing wage rate because they have means of support other than employment for instance affluent individuals. Involuntary unemployment is when persons cannot obtain work even if they are willing to accept low real wages than qualified workers who are currently in employment (Arthur, 1968). Visible unemployment exist when persons is without work but are seeking at a given wage rate. Disguised unemployment exist when persons are without work but not openly seeking for work, who will seek for work at ongoing wage rate if unemployment were much lower.

Despite the contention in the above classification the taxonomy of unemployment includes a condition of being out of work, an activity of searching for work, an attitude of desiring a job under certain situation and needing a job (Levine, 1959).

Unfortunately, there had been little or no economic growth and development in Nigeria over the period depicted by rising unemployment; the need to avert the negative effects of unemployment has made the budget on unemployment problems to feature very prominently in the development objectives of many developing countries like Nigeria.

Englama (2001), “a person is said to be unemployed when he or she is able and willing to work and is available for work (that is, the person is actively searching for employment) but does not have work.

The international labour organization (ILO) defines the unemployed as numbers of the economically active population who are without work but available for and seeking for work including people who have lost their jobs and those who have voluntarily left work.

There are three ways to become unemployed, some people are sacked, others are temporarily laid off and some people voluntarily quit their existing jobs. But the inflow to unemployment can also come from people not previously in the labour force, school-leavers (new entrants), and people who once have a job then ceased even to register as unemployed, and are now coming back into the labour force in search of a job (re-entrant) (Beggs, 2000). On the other hand there is a situation in which a worker is employed, but not in the desired capacity where in terms of compensation hours, it is called a situation of under employment.

According to NBS, unemployment covers persons age 15 to 64 who during the reference period were currently available for work, seeking for work but were without work, person is unemployed if he or she is engaged in the production of goods and services thereby contributing to the GDP. Unemployment rate rose to 23.90% in the 2011 statistic on unemployment.

According to Lipsey (1963), unemployment brings about economic waste and causes human suffering. The contributions and attitude of this economic waste were emphasized by the fact that the factor services are the least durable economic commodity.

The socio-economic effect of unemployment include fall in national output, an increase in rural-urban migration, waste of human resources, high rate of dependency ratio, frustration, poverty and depression, all sort of in moral activities like criminal behaviour, prostitution, armed robbery, and rapping. (Adebayo, 1999).

According to Beggs (2000), unemployment can be generally broken down into several types that are related to different causes including:

Classical unemployment occurs where wages are too high to employers due to the main wage laws or trade unions activity. Frictional unemployment exist where there is lack of adjustment between demand and supply of labour; lack of necessary skills, labour immobility, breakdown of plants and machinery, and shortage of raw material; temporary unemployment arising from the normal job search process, it includes people re-entering into the job market after their long absence people who have quit their jobs in search for better ones; people who have been laid off. Structural unemployment arises when jobs are eliminated by changes in the structure of the economy due to technological progress and shift in the demand for goods and services for instance becoming increasingly computerized some workers are losing their job at the same time new jobs such as a computer repairs, technicians and software engineers are employed. Seasonal unemployment results from seasonal fluctuation in demand for instance the employment for ice-cream factories is only for the summer; they remain unemployed during the winter; the agricultural workers who are employed during harvesting and sowing season remain idle for the rest of the year.

Again, inadequate information causes unemployment and this is a source of unemployment that cannot be neglected; if people do not know that jobs are available they will not take them. The major economic shocks such as the problem of great depression, unemployment, and under-employment can be avoided through policy changes; government will stabilize the economy and maintain continuous economic growth.

1.2 Statement of the Problem

The problem of unemployment has occupied the mind of scholars, economists, policy makers and international organizations for many years with an increased tension in the last decade. Even though there are different perspectives to unemployment, there is a general consensus that reduction in unemployment will lead to good economic growth and development that will lead to good change manifested in increased capacity of people to have control over material assets, and obtain physical necessities of life such as food, clothing and shelter.

According to John Maynard Keynes the progressive adjustment of wage involves a negative relationship between nominal wage changes and unemployment rate known as Philip’s curve (1958). The simplest interpretation of this curve is to consider that unemployment exerts downward pressure on nominal wage when there are few unemployed; workers are in a position to obtain higher unemployment because competition among employers to attract workers is intensified by low unemployment.

Following the oil doom in the economy in the 1980, the problem of unemployment started to escalate with the introduction of monetary exchange rates and the inability of most industries to import the raw materials required to improve their output level.

In the depression phase demand for goods and services is the minimum, construction of all types of capital goods is at stand still; there is massive unemployment and the economic growth and development of the country suffer. Also the generous unemployment benefit may hinder individuals to look for a job in order to gain access to unemployment benefits. Rapid population growth accompanied by un-precedented inflow of rural migrants generate massive urban problem of rural unemployment. The main aim of government is to attain full employment level but it failed to materialize.

In Lewis model rural to urban migration is one of the demographic characteristic of developing countries and the mechanism theory which revealed that labour transfers physically from agriculture to city based industrial employment thus enhancing the expansion of the modern sector and integration of the two sectors of the dual economy; inward migration to urban area will continue as long as the expected value of earnings of the urban wage exceeds the rural wages. Many people especially those living in rural areas were frustrated by lack of job opportunities, also they include those without work and who have job but want to work for longer hour. A very little attention has been paid to self employment scheme in Nigeria not until in the 1980’s during the period of great recession; they adopted the structural adjustment programme (SAP).

To provide a permanent solution to this problem arouse a universal conviction that unemployment is inevitable and it created pessimism that government has no power to bring unemployment trend to a halt; it is not only a severe problem but also has a disquieting effect on the economic, political and society as a whole.

According to Damachi (2001) the task of solving unemployment problem is anchored on better utilization of manpower through policies that promote economic growth. The manpower board and national directorate of employment established by the government have not reduced unemployment.

1.3 Objective of the Study

The objectives of this study are as follows:

  1. To determine the relationship between unemployment and economic growth in Nigeria.
  2. To determine the short-run impact of unemployment on output level in the Nigerian economy.

1.4 Statement of the Hypothesis

  • HO: Unemployment has no significant impact on economic growth in Nigeria.
  • HI: Unemployment has a significant impact on economic growth in Nigeria.

1.5 Significance of the Study

Unemployment causes misery, social unrest and hopelessness for the unemployed. In Nigeria, the existence of high unemployment is a source of concern to policy makers as well as the general citizenry, because employment provisions can be used to check the performance of the economy.

If unemployment is left unchecked, it will go along way hindering any economic development plans of the country. It is on this note that unemployment in Nigeria with its resulted effect has been treated in this study. This work will be of valuable help to policy makers.

The policy makers use different strategies to prevent unemployment in Nigeria, they include changing the pattern of production in order to create employment through entrepreneur innovation known as Youth Enterprise With Innovation (YOUWIN) programmes; emphasis should be placed on the production of essential goods which use the labour intensive techniques.

The study will help each leader to have bold initiative and quickly tackle the terrible economic crisis by making wise economic policy and encourage large scale borrowing for public expenditures.

It helps the leaders to realize that rapid full employment desired by every country can only be possible if it was combined with wage and price controls, so as to recognize the nation’s social, political, cultural and educational life in commensuration with the national socialist principles. Through this findings and subsequent recommendations of this study, unemployment will be eradicated. It will provide an insight into the relevant literature and help to lay bare the causes and effects of unemployment in Nigeria.

It is the opinion of the researcher that the study will be of immense benefit to fellow student researcher because it will serve as a spring board especially for those who will want to research further on the subject matter in future.
It therefore shall be of usefulness to subsequent researchers as a reference material.

1.6 Scope and Limitations of the Study

This research work is restricted to Nigerian economy only; the focus is on the growth of the Nigerian economy and unemployment.

The period covered by the research is 31 years from (1980 – 2010).

There are some limitations of this work; mostly the secondary data are used in the study because of the difficulties encountered in the gathering of the primary data given the nature of the study which is the aggregate level of the economy.

The absence of information caused a lot of hindrance; some relevant variables may not be included in the research model due to lack of reliable data on them. This study cannot be said to have exhausted all the relevant details on the nature of the relationship between unemployment and economic growth as a result of the above reasons. This work has a number of challenges which include inadequate finance and shortage in the availability of relevant materials.

Chapter Five

Summary of Findings, Recommendation and Conclusion:

5.1 Summary:

In investigating the relationship between unemployment and GDP, this study attempts to evaluate the short-run impact of unemployment on the economics performance of the Nigerian economy. From the result unemployment has a positive relationship with GDP and its apriori sign does not conform to the economic theory. However, the result from the T-test analysis shows that unemployment has a significant impact on the GDP. The coefficient of determination (R2) amounted to 0.4681 which shows that the independent variable explained 46.81% of the dependent variable; the result from the F-test shows that the overall model is significant.

The findings showed that the incidence of unemployment in Nigeria have been increasing as depicted by the available statistics; it revealed that unemployment are caused by low economic growth, population growth, poor governance, macroeconomic shock and policy failure, corruption, debt burden, poor enabling environment,
neglect of agricultural sector among other. It was noted that unemployment constitute impediment to sustainable economic growth and development and in material respect produce political, economic, social health and psychological effect on the citizens and the economy in general. Therefore, the need to stimulate economic growth in Nigeria with the utmost commitment cannot be over emphasized; it can be possible through the diversification of the economy through the dismantling of the central federalism that encourages total and absolute dependence on oil.

Nigerian government should as a matter of urgency imbibe the spirit of true federalism by institutionalizing resource ownership for the country’s resource management and reducing the inordinate urge for central power control that induces much political violence.

By so doing, regional development, high standard of living and economic diversification will be achieved; this will greatly improve the growth process of the economy and generate employment opportunities. Human capital variable are the key variable in unemployment reduction in Nigeria, this implies that more attention should be shifted to human capital development in order to accelerate economic growth in Nigeria. Given the high level of unemployment in Nigeria, the development of entrepreneurial skills and initiative should be of paramount important especially the higher education sector in order to facilitate the employability of graduates. In the view of this, to attack unemployment then, there is the need to restructure the educational system in respect of manpower production for the needs of the economy.

Vocational skills should be given high priority as it is capable of generating self employment; the technological institutions in the country should be properly funded and equipped to ensure efficiency. This would motivate the youth to opt for disciplines that would earn them job independence afterwards.

5.2 Recommendation:

5.2.1 Policy Recommendation

The fundamental issues to be addressed in order to reduce and solve unemployment problem in Nigeria lies basically in tackling the causes of unemployment through policy initiative. This includes:

  1. A stable macroeconomics policy formulation and honest implementation by government is essential for effective unemployment reduction.
  2. The pursuance of rapid broad-based economic growth that involves the poor and graduates employment will have a tremendous effect on the reduction of both poverty and unemployment.
  3. The agricultural sector should revitalize to provide employment opportunities.
  4. Emphasis should be laid on skill acquisition in the educational system so as to produce graduates that are providers of employment than seekers of employment.
  5. An enabling environment should be created for private sector investment to increase as this will go a long way to reduce unemployment instead of leaving the unemployed at the mercy of the public sector which does not provide enough employment opportunities.
  6. The fight against corruption should be intensified as this would reduce mismanagement of resources that would have been used for effective unemployment reduction.
  7. The standard of living of the public should be improved upon by providing the basic infrastructures most especially in the rural area where the majority of the poor is residing. This will also reduce migration to urban centre that resulted to rapid in the urban unemployment.
  8. There is need to have a population policy which will limit population growth to the level that is compatible with the expansion and employment generation capacity of the economy.
  9. Credit facilities should be made available for small and medium scale enterprise to enable job seekers who wish to start off their own business to be able to do so
  10. Unemployment reduction programmes should have sustainability mechanism as this would enable for enable for effective checkmating of unemployment rate. There should be participatory approach in programme planning, implementation and evaluation of unemployment reduction programmes.
5.2.2 Recommendation for Further Studies

In the course of this research work, so many observations were made. These observations show that if appropriate measures are not taken immediately to arrest the unemployment problem; the target year of 2020 cannot be achieved. The researcher thinks that there is a natural relationship between changes in unemployment and changes in output. However, the exact form it takes is a complicated problem that required going beyond the simple regression analysis; there is need to determine effect of variables such as poverty on the GDP other than the unemployment problem.

5.3 Conclusion

The findings of this study shows that problem of unemployment in Nigeria requires a pragmatic approach to minimize it. Increasing the employment rate is not the only way out of this trap but making sure that most vulnerable group of the economy are taken care of, which would then enhance economic growth and development.

The consequences of a growing unemployment phenomenon are such implications are glaring in the economy of Nigeria where many negative developments are traceable to the non-availability of jobs for the teaming population of energetic youths. While the government takes the leading role in the task of employment generation by providing the necessary enabling environment for economic activities; it is necessary to note that the battle against unemployment problem in Nigeria is like a war that too important to be left for the generals alone, it cannot be left for the sole effort of the government, all the stakeholders must therefore work together to overcome the hurdles of unemployment.

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