Poverty And Unemployment An Empirical Analysis

Project and Seminar Material for Economics

Project and Seminar Material for Economics

Chapter One


1.1 Background to the Study

Poverty and unemployment issues have been the subject of discussions for many centuries. Often poverty is described as the enemy of mankind and it is thought to be the gross violation of our civilization (Kazi and Leonard, 2012). The history of mankind demonstrates that poverty is nothing but a curse, not only for the individual who is poor, but for remainder of the community, nation and global society at large. It compels people to think that famine, misery and deprivation are natural course of life; and that the poor people are not entitled for living better lives. Poverty and unemployment; an identical bane is a global trend which affects people in various depths and levels at different times and phases of existence. The extent of association between poverty and unemployment in developing countries is often a subject of considerable debate. There is actually no nation that is absolutely free from poverty and unemployment. The major difference is the degree and pervasiveness of this similar blight.

Unemployment and poverty are so intertwine that one can easily confuse one for the other. Although, it is possible for one to be employed and still poor, this is likely to be a case of underemployment. Thus, by unemployment, it includes those underemployed. Unemployment and underemployment reflect the failure to make use of an important factor of production, labour, for fostering economic growth in Nigeria. Low returns to labour as well as high unemployment indicates poverty. Poverty makes it difficult to make investments in education and health that would increase a person‘s productivity. This is not only true for individuals; families equally face an inter-generational poverty trap. Families face the choice between sending their children and young family members to school and sending them to earn much-needed income. The social aspects of the problem lie in the association of unemployment with social exclusion and a sense of hopelessness. Structural unemployment and widespread poverty are believed to be the basis for the activities of miscreants such as militant youth in the Niger Delta and the present deadly Boko Haram ravaging the north eastern Nigeria and upsetting the seemingly peaceful and stable political situation. The activity of Boko Haram has resulted in many deaths and destruction of property and unemployment worth millions of dollars.

Unemployment is often referred to as a measure of those who are actively seeking for job but cannot find any which matches their qualification. It is defined as the condition of having no job or being out of work; the proportion of people who are able to work and actively searching for one but are unable to find it (Rafiq et al, 2010). According to IMF (1998), “Unemployment is measured annually as percentage of Labour Force that can’t find a job. It is described by International Labour Organisation (2001) as a situation of being out of work or need a job and continuously searching for it in the last four weeks or unemployed (age 16 or above) but available to join work in the next two weeks.

Poverty on the other hand can be seen both as a relative concept as well as an absolute concept. Slavin (1999) in this wise, differentiate between the poor, the middle class and the rich. In his words, the poor are in the lowest quintile, while the middle and the rich are in the next three quintile and upper quintile respectively. This he did by using Lorenz Curve, measured in quintiles. This is defining poverty in a relative term, just as it corroborates Galbraith (2008). According to him, people are poverty stricken when their income, even if adequate for survival, falls drastically behind that of the community. Thus, poverty is defined relatively by comparing living standard of the people with that which is obtainable and acceptable in the country. While absolutely viewed as in those afflicted by poverty as having limited and insufficient food, poor clothing, as well as such crowded; cold and dirty shelter and having their life being painful and comparatively short. Poverty and unemployment in Nigeria.

Nigeria is the most populous country in Africa and the eight in the world with a population of over 178 million people as at January 1, 2015 (United Nations Statistics Division). A high level of unemployment and poverty is one of the critical socio-economic problems facing Nigeria with the labor force (with an increasing proportion of youth) being unable to get absorbed in the labor market. As a result, youth are especially affected by unemployment. Moreover, young people are more likely to be employed in jobs of low quality. Underemployed working long hours for low wages, engaged in dangerous work or receive only short term and/or informal employment arrangements. The inadequate employment situation of youth has a number of socio-economic, political and moral consequences. This has resulted in poverty in Nigeria which is chronic and rising. The share of the total population living below the$1 (one dollar) a day threshold of 46 percent is higher today than in 1980s and 1990s, this despite significance improvements in the growth of GDP in recent years

Official figures from the Bureau of Statistics puts the figure of unemployed at 19.70 per cent, about 30 million, but this figure still did not include about 40 million other Nigerian youths captured in World Bank statistics in 2009. By implication, it means that if Nigeria‘s population is 140 million, then 50 percent of Nigerians are unemployed (Njoku and Okezie, 2011). Viewing this from the perceptive of the recent events in the Middle East where unemployment and poverty among others played a key role in the uprising, one can only conclude that Nigeria‘s unemployment and high poverty level poses even greater threat to its development, security and peaceful co-existence. It is in light of proffering solutions to the problems of poverty and unemployment that the current study is germane.

The World Bank and United Nations Development programme (UNDP)’s Human Development Index (HDI) which looks beyond GDP to a broader definition of well-being placed Nigeria on 0.461 in the year 2002 aptly indicates the nation’s development. Over the year’s successive government have adopted various policies and programmes to deal with the problem of poverty and unemployment in the country but despite the efforts, the scourge is still trending upward. it is therefore the main objective of this work to scrutinize the effect of unemployment on poverty in Nigeria.

1.2 Statement of the Problem

The issue of Poverty and unemployment has continued to be a core subject matter in Nigeria and other African countries alike. Human poverty is more than income poverty since it is the denial of choices and opportunities for living tolerable life (United Nations 1997). Poverty amid plenty is a challenge and has been on the increase for a long time now. From economic theory, theory, population increase should be able to attract increased economic growth and consequently increased standard of living which is one of the measures of development.

In Nigeria, this situation is contradictory given the large resources (human and physical) that the country is endowed with. The country has increasing rate of poverty both at the regions and at the national level, high unemployment rate, high income inequality, low quality human capital, high percentage of population on welfare and high out migration in the face of high economic growth measured by GDP. Information from the National Bureau of Statistics – NBS (2006; 2012) and UNDP (2009) showed that about 15% of Nigeria’s population was poor in 1960. Poverty rates in Nigeria increased from 27.2 percent in 1980 to 42.7 percent in 2004 and further to 65.6 percent in 2010.While the27.2 percent for 1980 equals 17.7 million persons, in 2010, 112.5million persons were found poor in absolute terms. ” still on Poverty and unemployment in Nigeria”

Unemployment rate increased from 2.3 in 1980, to 18.1 in 2000. This however dropped to 11.8 in 2004 but rose to 21.1 in 2010 and about 25% in 2012. Manufacturing capacity utilization was only 55.4% in 2010 in comparison to the amount of resources that is in the country. Life expectancy has been so low over the period, between 45 and 51 from 1980 to 2010 unlike other developing countries like Kenya, Pakistan, Ethiopia to name but few with increasing life expectancy rate (National Bureau of Statistics, 2006; Central Bank of Nigeria, 2013);(UNDP, 2009; 2013).

According to World Bank (2011) of the World Bank, Human Development Index (HDI) in 2011 puts Nigeria at 156th position among 177 countries as compared to the 151st position in 2002, Nigeria’s human poverty index (HPI) for 2009 was only 36.2% placing Nigeria at the 114th position and among the 7th poorest nations in the world while the ratio of the richest 10 percent to the poorest 10 percent was 16.3 with Gini index from 42.9 in 2004 to 44.7 in 2010 (National Bureau of Statistics – NBS, 2012; UNDP, 2013). Yet the country ranks 6th and 7th as oil producer and exporter and ranks 10th as the most populous country in the world with a real GDP growth rate of 7.0 in 2009 which grew to 8.0 in 2010 which however dropped to 6.3 in 2013.

Though Nigeria recorded 7.5 percent expansion in 2012 that was faster than the global and regional average in 2011 this growth which did not impact positively in the eyes if majority, might have neither improve the employment rate and living standards of Nigeria in 2012. Recent data from the National Bureau of Statistics placed the country’s misery index at 34% a development which analyst described as horrible and terrifying. According to the Bureau the figure of unemployed Nigerians in the first half of 2011 was 23.9% from 21.1% in 2010 and 19.7% in 2009. This shows that the rise in unemployment is bound to worsen as the year goes by. Therefore the crucial problem of this research is to ascertain whether there is an appreciable relationship between poverty and unemployment rate in Nigeria.

1.3 Research Questions

In the course of this work, the following questions will provide a lead.

  1. Is there any significant causal relationship between poverty and unemployment in Nigeria?
  2. Is there long run relationship between unemployment and poverty in Nigeria?
  3. Is there any significant effect of unemployment on poverty in Nigeria?

1.4 Objectives of the Study

The fundamental aim of this research work is to construct an empirical relationship between poverty and unemployment.

However, the following specific objectives will be achieved.

The specific objectives of the study therefore include the following

  1. To establish the direction of causality existing between poverty and unemployment.
  2. To determine the nature of long-run relationship between poverty and unemployment.
  3. To determine the impact of unemployment on poverty in Nigeria.

1.5 Statement of Research Hypothesis

The following null hypotheses were tested in the course of the research work:

  1. There is no significant causal relationship between poverty and unemployment in Nigeria
  2. There exist no long-run equilibrium relationship between poverty and unemployment in Nigeria
  3. Unemployment does not have significant impact on poverty in Nigeria.

1.6 Significance of the Study

In Nigeria poverty and unemployment are really assuming a crisis level. Therefore the study will be relevant since it will provide an insight into the relevant literature and will help to lay bare the causes and effects of poverty and unemployment in Nigeria.

It will equally be of help to the general populace to appreciate the fact that poverty and unemployment is twin scourge that need to be faced in order to achieve economic growth and development and that through the findings and subsequent recommendations of this study, poverty and unemployment will be reduced or eradicated. Finally, it will be of immense importance to future researchers since it will serve as a spring board for further research.

1.7 Scope and Limitations of the Study

The researcher’s work focuses on the relationship between poverty and unemployment with special emphasis on the impact of unemployment on poverty in Nigeria. For empirical analysis, this study is limited to the period between 1980 and 2015.

As it relates to the limitations encountered, the study of this nature cannot be completed without the researcher experiencing some constrains. The first major limitation of the study experienced by researcher was lack of time. This is due to the fact that both academic course work and the study were taking place simultaneously.

Another limitation encountered by the researcher was the lack of sufficient data particularly on poverty which greatly affected the study in terms of carrying out a direct and detailed econometric analysis on the variables.

Finally for an in-depth work to be carried out in this study, the sourcing of data was not easy.

1.8 Operational Definition of terms

The following definition of terms simply represents the specific meaning that will be given to them in this study


This is a living condition in which an individual is unable to take care of his basic needs like clothing, food, shelter, inability to meet social and economic obligations, lack of gainful employment and other environmental opportunities at his disposal.


This is a situation where by one is able and willing to work at a prevailing wage rate but does not have work.

Poverty Rate:

This is the percentage of a nation’s population with income below the poverty line.

Poverty Line:

This is the value of basic necessities considered essential for melting the minimum socially acceptable standard of living in the society.

Unemployment Rate:

This is the percentage of labor force without jobs but is willing and available for work.

National Income:

This is the total amount of income given to a country from economic activities usually in a given year or the total value of goods and services produced annually in a country

Per-Capita Income:

This is the average income of the people of a country in a particular year. It is obtained by dividing the national income of a country by its population

Economic Development:

This refers to the concentrated actions of policy makers and communities that promote the standard of living and economic health of a specific area. It can also be referred to as the qualitative and quantitative changes in the economy.

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