Impact Of Unemployment On Economy Of Nigeria

Project and Seminar Material for Economics

Impact Of Unemployment On Economy Of Nigeria


Abstract


In curtailing unemployment, economic growth has been recognized as a key variable that can address the menace. The contributions of economic growth to economic development cannot be overemphasized as it has been recognized as one of the necessary conditions for economic development. It is a medium through which unemployment can be reduced, inflation can be stabilized, innovation can be promoted and a panacea for poverty reduction and eradication in a nation. Economic growth provides the platform for entrepreneurs to emerge who on the other hand reduces unemployment rate through the creation of jobs.


Chapter One


Introduction

1.1 Background to the Study

Unemployment is generally seen as a macro-economic problem as well as socio-economic problem. Unemployment arises as a result of insufficient and non-availability of jobs to correspond with the growing population, even those who are employed sometimes live with the fear of being unemployed due to job insecurity and retrenchment of workers. There is employment of factors of production if they are engaged in production. The term unemployment could be used in relation to any of the factors of production which is idle and not being utilized properly for production. However, with reference to labour, there is unemployment if it is not possible to find jobs for all those who are eligible and able to work. Labour is said to be underemployed if it is working below capacity or not fully utilized in production. (Anyawuocha, 1993).

Unemployment can either be voluntary or involuntary. Voluntary in the sense that one chooses not to work because he or she has means of support other than employment. Example is an idle rich man. On the other hand, involuntary unemployment exist when persons who are eligible and willing to work at the prevailing rate of pay are unable to find work. (Anyanwa, 1995).

According to the central bank of Nigeria (2004), unemployment rose to 30% during 2004 statistics on unemployment rate.

Unemployment has been seen as a world-wide economic problem and has been categorized as one of the serious impediments to social progress. Apart from representing a huge waste of a country’s welfare, it also implies loss in terms of lower output thereby leading to lower income and wellbeing of the people (Akinboyo, 1987, and Raheem 1993). Unemployment is a very serious issue in Africa (Vandemortele, 1991, and Rama 1998), and particularly in Nigeria (Oladeyi, 1994 and Umo, 1996). The need to avert the negative effect of unemployment has made the tackling of unemployment problems to feature very prominently in the development objectives of many developing countries.

In the study of unemployment in Africa, Okonkwo (2005) identified three (3) causes of unemployment, namely; the educational system, the choice of technology which can either be labour intensive or capital intensive and inadequate attention to agriculture. The use of machines to replace work done by labour and computerization has contributed to these social problems in the sense that for example; a task meant to be manually undertaken by forty (40) men can be done by a machine with only five (5) men involved. Therefore, the remaining thirty five (35) are unemployed. More so, lack of enough education and skill and inability to have access to credit and capital.

One particular feature of unemployment in Nigeria is that it was more endemic in the early 1980’s than any other period. According to Udabah (1999:62), the major factor contributing to low standard of living in underdeveloped countries is their relative inadequate or inefficient utilization of labour in comparism with advanced nations. Unemployment rate is measured by the proportion of the labour force that is unemployed divided by the total number of the labour force. The total labour force was projected at 61,249,485 in 2007 indicating an increase of 3.9%. Total employment in 2007 stood at 52,326,923 compared with 50,886,836 in 2006. This represents an annual increase of 2.8%. The labour force(that is, those who currently have jobs) consists of the number of people age 18 and above and unemployed (those who do not have jobs but who are actively looking for work).Individuals who do not fall into either of these group such as retired people and discouraged workers are not included in the calculation of the labour force.

The International Labour Force Organization (ILO) defines unemployment as the proportion of the labour force which was available for work but did not work for at least one hour in the week preceding the survey period. National Bureau of statistics (N.B.S), Nigeria defines unemployment as the proportion of the labour force that is available for work but did not work for at least thirty nine (39) hours in the week preceding survey period.
Unemployment according to lipsey (1963:456) brings about economic waste and cause human suffering. According to Fadayomi, 1992, Osinubi, 2006, unemployment is as a result of the inability to develop and utilize the nations manpower resources effectively especially in the rural sector.

The socio-economic effect of unemployment includes: fall in national output, increase in rural-urban migration, waste of human resources, high rate of dependency ratio, poverty, depression, frustration, all sorts of immoral acts and criminal behavior e.g prostitution, armed robbery e.t.c. The social effect of unemployment brings to light the need to proffer possible solutions to salvage our nation Nigeria.


1.2 Statement of the Problem

Working with the data from the national bureau of statistics, it indicates that the national unemployment rate in the first quarter of 2007 was 14.6%, compared with 13.7% in 2006. The urban and rural rates were 14.4% and 15.0% respectively compared with 10.2% and 14.8% in 2006. Further analysis showed that the distribution of unemployment ranged from 14.1% for the age group of 25-44 and 23.5% for the age group of 65-70. Desegregation according to geopolitical zones showed a very uneven distribution with the south-south zone having the highest unemployment rate of 29.5% and south-west at the rear with 8.5%. Between these extremes were the north-east with 18.5%, south-east 18.1%, north central 15.8% and north-west 14.2%.

It is based on the increasing problem posed by unemployment on individuals and the nation at large that the government has been embarking on various policies to control and reduce unemployment but yet has not yielded any positive result, rather it seems to be escalating. Drastic measures must be taken by the government to curtail this problem of unemployment. The statement of problem is based on the economic, social and political effects of unemployment.


1.3 Objective of the Study

The broad objective of the study is to examine the impact of unemployment on the economy growth of Nigeria. The specific objectives of the study are;

  1. To examine the relationship between unemployment and economic growth in Nigeria.
  2. To examine the impact of government’s expenditure on education.
  3. To examine the impact of government’s expenditure on health.

1.4 Research Hypothesis to the Study

In assessing the relationship between unemployment and economic growth in Nigeria, the hypothesis stated below was subject to empirical test. Using quantitative statistical techniques.

Ho: Unemployment does not have significance impact on economic growth in Nigeria.


1.5 Justification for the Study

Studies on contribution of education to growth and development of an economy have shown that there is casual relationship between education and economic growth. Briggs (1999) stated that the economy of the developing countries and their slow rate of progress could be attributed to their deficiency in education.

According to ILO (1999), ‘’a healthier, more educated and highly skilled population is the surest way to higher productivity’’. Following these assertions, therefore, one may suggest that in ensuring sustainable economic growth and development in an economy, education is a critical factor. In the Nigerian context, education is looked upon for social and economic transformation (see national policy on education 2004). There is a large amount of evidences suggesting the positive association between education and economic growth. Notable among these studies include Shamistha and Grabowski (2004); Prodrecca and Carmei (2002), Temple (2001). Odusola (1998). Examines the impact of human capital investment on economic growth in Nigeria. He disaggregated government expenditure on education into capital and re-current expenditure on education with view to determine the particular expenditure pattern of government with the larger contribution to education quality growth. Realistically, the development in Nigeria’s educational system has attracted considerable empirical scrutiny (Yesufu 2000). The mechanics of how human capital influences economics growth has however, attracted modest inquiry. Investing in human capital most especially women education, will also enhance their productivity capacity, increase their income and make them better informed about the value of health care and personal hygiene. An educated woman will be able to improve the health and life expectancy of her children and create incentives for reducing family size, which in turn will help reduce poverty (Psacharopaulos and winter 1990)

The political rhetoric surrounding this issue is quite long, but augmentation with specific investigation especially for Nigeria is scarce. This is the motivation behind this study and also the study is important for Nigeria that is faced with astronomical levels of unemployment, paradoxically among the highly educated. Thus, it is pertinent to investigate how significant public expenditure is to human capital development in the context of high unemployment among the well-read.


1.6 Scope of the Study

The scope of this study is centred on the effect of unemployment on the Nigerian economy. The research work is also centred on ten years duration from 1990 – 2014. The regression analysis will be based on the use of time-series data extracted from the central bank of Nigeria statistical bulletin. The method of analysis used in testing the hypothesis is the t-test, f-test e.t.c.


1.7 Plan of the Study

The study is structured into five chapters; chapter one deals with the background to the study, statement of problem, objective of the study, hypothesis of the study, justification for the study, scope of the study and plan of the study. Chapter two covered the literature review and the theoretical framework. Chapter three contains the nature and sources of data, model specification, a priori expectation, re-statement of hypothesis, method of analysis and evaluation criteria. Chapter four is on data presentation , analysis and discussion of empirical results, chapter five contains the summary of major findings, conclusion and recommendation.


Chapter Five


Summary of Major Findings, Conclusion and Recommendations

5.1 Summary of Major Findings

From the research carried out on the effect of unemployment on economic growth in Nigeria from 1980-2010 using ordinary least square regression technique, the data shows that unemployment is negatively related to the economic growth. The economic analysis of the findings shows that the variables under consideration conform to apriority expectation of the economics theory. The statistical evaluation equally shows a higher level of statistical insignificant of individual coefficient of the estimate.

The evidence stems from the fact that the T- statistics of the variables shows that UNEMP and MS are insignificant while GEXP is significant as shown in section 4.3. However, the R², which had a value of 0.971 indicate that the entire regression had a goodness fit which means that, 97.1% fluctuation in the dependent variable is explained by fluctuation in the regression. More so the F-test showed that the entire regression was adequate. The summary of the whole regression indicated that the overall regression is statistically significant implying a good fit. The econometric finding shows that from the Durbin Watson (DW) test that the successive values under consideration were Auto correlated. That is, the absolute values of DW statistics are greater than various critical values at 5%.


5.2 Conclusion

Empirical research was carried out testing the Effect of Unemployment on Economic Growth in Nigeria, using Gross Domestic Product (GDP) as a proxy for Economic growth. Gross Domestic Product (GDP) was regressed on Unemployment rate, Government Expenditure, and Money supply between 1980 – 2010. The result also shows that unemployment does not significantly affect economic growth, but a good performance of an economy in terms of per capita growth may therefore beattributed to the other factors in the country.


5.3 Recommendations

Based on the finding and conclusion drawn above;

  1. Concerted effort should be made by policy makers to increase the level of output in Nigeria by improving productivity/supply in order to reduce unemployment and the prices of goods and services (inflation) so as to boost the growth of the economy.
  2. Another policy implication of this study is that government should embark on labour intensive technique of production as against capital intensive and also close the border to some extent which is the likely measure to reduce unemployment and Inflation and increase domestic output level (GDP).
  3. There is equally an urgent need for moreinfrastructure facilities like expanding the telecommunication network to the rural part of the country, good roads and electrification projects which can create employment for the jobless citizens.
  4. A conducive environment for foreign direct investment should be created to ensure Nigeria’s full participation in the global business opportunities that would create job for the teeming population.

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