ABSTRACT
The term ‘unemployment’ can be defined as an economic condition
marked by the fact that individuals actively seeking for job remain
unemployed. Unemployment is very common in under-developed
nations like Nigeria and it affects graduates of various institutions of
learning. The study was designed to investigate the impact of
unemployment on economic growth in Nigeria for the period of 29 years
(1982 – 2010). The focus of the research was to determine the cause
and impacts of unemployment and this problem can be reduced in
Nigeria to a minimal level or if possible, eradicated. The objective of this
study is to determine the relationship between unemployment and
economic growth in Nigeria (GDP). The method of analysis used in
testing the hypothesis is T-test, F-test etc. Data for the study was
obtained from the Central Bank of Nigeria Statistical Bulletin. The major
finding was that unemployment has a negative impact on the gross
domestic product (GDP) of the Nigeria economy. Based on the findings,
some recommendations of policy and suggestions have been made.
NNABUIHE ENDERLYN.
vi
TABLE OF CONTENT
Title Page – – – – – – – – – – i
Approval Page – – – – – – – – – ii
Abstract – – – – – – – – – – iii
Dedication – – – – – – – – – – iv
Acknowledgment – – – – – – – – – v
Table of Content – – – – – – – – – vi
List of Tables – – – – – – – – – ix
CHAPTER ONE
THE IMPACT OF UNEMPLOYMENT ON ECONOMIC GROWTH IN
NIGERIA
1.1 Introduction – – – – – – – – – 1
1.2 Statement of Problem – – – – – – – 7
1.3 Objective of the Study – – – – – – – 11
1.4 Significance of the Study – – – – – – – 11
1.5 Scope and Limitation of the Study – – – – – 13
CHAPTER TWO
2.0 Literature Review – – – – – – – – 16
vii
2.1 Theoretical Literature Review – – – – – – 16
2.2 Empirical Literature – – – – – – – – 30
2.2.1 The Relationship between Unemployment and Economic Growth41
2.2.2 Types of Unemployment – – – – – – – 43
2.2.3 Causes of Unemployment in Nigeria – – – – – 45
2.2.4Effects of Unemployment – – – – – – – 47
CHAPTER THREE
3.0 Research Methodology – – – – – – – 49
3.1 Model Specification – – – – – – – – 50
3.2 Analytical Technique – – – – – – – – 51
3.3 Statistical Criteria (First Order-test) – – – – 52
3.3.3 Econometric Criteria (Second Order Test) – – – 53
CHAPTER FOUR
4.0 Presentation of Result and Data Analysis – – – – 56
4.1 Presentation of Regression Results – – – – – 56
4.2 Result Interpretation – – – – – – – 57
viii
4.2.1 Evaluation Based On Economic Criteria – – – – 57
4.2.3 Evaluation Based On Statistical Criteria – – – – 57
4.2.2.3 Econometric Criteria (Second-Order Test) – – – 61
CHAPTER FIVE
5.0 Summary of Findings, Conclusion and Policy Recommendation
Summary of Findings – – – – – – – – 70
5.1 Summary of Findings – – – – – – – – 70
5.2 Policy Recommendation – – – – – – 71
5.3 Conclusion – – – – – – – – – 72
BIBLIOGRAPHY – – – – – – – – – – 74
APPENDIX
ix
LIST OF TABLES
The Decision Rule – – – – – – – – 54
Table 4.1 Result Summary (modeling GDP by OLS) – – – 56
Table 4.2.2: A priori expectations – – – – – – 57
Table 4.3: t-test summary test – – – – – – 59
Table 4.4: F-test summary – – – – – – – 60
Decision rule – – – – – – – – – 62
Table 4.5: correlation matrix – – – – – – – 63
1
CHAPTER ONE
THE IMPACT OF UNEMPLOYMENT ON ECONOMIC GROWTH IN
NIGERIA
1.1 Introduction
Unemployment is defined as an economic condition marked by the fact
that individuals actively seeking jobs remain unhired. Unemployment is
expressed as a percentage of the total available work force. It is seen as
a macroeconomic and sociological problem which 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 retrenchment. The term unemployment could be used in relation to
all the factors of production. But in 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 utilized in production employment can
either be ‘voluntary’ or ‘involuntary’.
Voluntary unemployment is a situation where somebody chooses not to
work because they have means of support other than employment e.g.
idle rich man. Voluntary unemployment is attributed to the individuals
decision; it includes workers who reject low wage jobs, whereas
2
involuntary unemployment exist because of socio-economic environment
(including market structures, government intervention and the level of
aggregate demand) in which individuals operate, involuntary
unemployment include workers who are fired due to an economic crises,
industrial decline, company bankruptcy or organization restructuring
unemployment is seen as a worldwide economic problem and has been
categorized as one of the serious impediments to social progress.
Unemployment is a very serious issue in Africa (VandeMoortele, 1991
and Rama, 1998) and particularly in Nigeria (Oladeji, 1994, Umo, 1996).
The need to avert the negative effects of unemployment has made the
tacking of unemployment problem to feature very prominently in the
development objective of many developing countries.
In the study of unemployment in Africa, Okonkwo (2005) identified
three causes of unemployment; the educational system, the choice of
technology which can be 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
problem. Moreso, lack of enough education and skills to have access to
credit and capital.
3
One peculiar feature of the unemployment problem in Nigeria is that it
was more endemic in the early 1980s than any other period. It becomes
an acute problem in Nigeria, immediately after independence. The major
factor contributing to low standard of living in underdeveloped countries
is their relative inadequate on advanced nations. Unemployment rate is
given by the proportion of the labour force that is employed 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
consists of the number of the people aged 18 and more, who are
employed (i.e. those who do not have jobs but are actively looking, for
work). Individuals who do not fall into either of these groups such as
retired people and discouraged workers are not included in the
calculation of labour force.
The International Labour Organization (I.L.O) 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 (NBS) Nigeria defines unemployment as the
proportion of the labour force that is available for work but did not work
4
for at least 37hours in the week preceding the survey period.
Unemployment, according to Lipsey (1963:456) brings out economic
waste and cause human suffering.
Unemployment is as a result of the inability to develop and utilize the
nation’s manpower sources effectively, especially in the rural sector says
Dayomi, 1992; Osinubi, 2006. The socio-economic effect of
unemployment include fall in national output, increase rural-urban
migration, waste of human resources, high rate of dependency ratio,
poverty depression, frustration, all sorts of immoral acts and criminal
behavior like robbery, prostitution, etc. The socio-effect of
unemployment brings to limelight the need to proffer possible solutions
to salvage our nation Nigeria. In Nigeria, the ability and willingness to
work is not sufficient. It is necessary for the employed, to be registered
with an employment, bureau in order to be recognized as unemployed.
The unregistered unemployment are part of the labour force and are
therefore technically unemployed. Unemployment data are obtained in
Nigeria through labour force sample survey.
The International Labour Organization (I.L.O), realize the short-comings
of the labour survey as it effects developing economies such a Nigeria,
with a large informal sector, has encouraged a review of the
5
methodology to incorporate further disaggregation of respondents’
responses to bring out the true rate of unemployment. In order to
establish the type of unemployment existing in an economy, economists
have classified unemployment as ‘frictional, seasonal, structural or
cyclical unemployment’. Frictional unemployment is when people are
temporarily out of work because they are changing jobs. This is
unavoidable in an economy in which both the labour force and the jobs
on offer are continually changing. Seasonal unemployment is said to
occur in a situation in which people are laid off seasonally, due to the
nature of the jobs they do, e.g. agriculture, workers in developing
countries may be laid off during the growing season. Structural
unemployment is the unemployment that exist when an economy is in
more declining industries is falling. It is as a result of movement in the
natural employment rate itself, which can result from changes in labour
market institutions, demographic shift, etc, this situation is brought
about by economic variables, such a the level of aggregate demand and
the actual or expected real wage rate. Cyclical unemployment is as a
result of fluctuations around the natural employment, which can be
attributed to changes in aggregate demand.
6
The main cause of unemployment in Nigeria is the outburst of
population growth in the country compared to technological growth and
development in the country. The economic growth in Nigeria has been
stunted by the years of corruption, civil war, military rule and
mismanagement. It is suggested that the main reason there is such an
extent of unemployment in Nigeria is the under utilization of the
resources available. Nigeria has a number of abundance of diverse
human and natural resources but the inefficient utilization of these
resources in order to gain the maximum economic benefits has led to
the vast amount of unemployed citizens. This unemployment has
affected the country of Nigeria and its economic climate in a number of
ways.
Economic: The reduction in employment has left citizens without
purchasing power. This means that there is less of a demand for
product and services and in turn, the production and economic
growth has been hindered.
Social: Within the social effect of unemployment in Nigeria is an
increase in the rate of crime. Recent graduates have accounted for
some of the largest percentages of unemployed people who have
turned to a life in crime. Many believe that economic growth is not
7
going to be the solution for the unemployment in Nigeria.
Unemployment should be addressed by providing the necessary
training for people to gain the right skill for work. Also, the
concept of having a prosperous life is something that should be
worked towards and seen as a positive thing. Experts have
recommended a number of ways that Nigerians can try to
decrease the rate of unemployment.
Lack of information also causes unemployment which is a source of
unemployment that cannot be overlooked. If people don’t know that
Jobs are there, then they will not take them, the obvious solution for
this problem is to be able make information available to the people who
need it.
1.2 Statement of Problem
Nigeria has been experiencing high level of unemployment and inflation
partly because of inefficiencies in policies implementation and the
existing conflict between those two major macro-economic variables.
This situation has recently been compounded by the increasing
unemployment of professionals such as bankers, doctors and engineers.
The toll is within the productive segment of the Nigeria population
unemployment and underemployment have been one of the major
8
problems that the Nigerian economy has being facing because a high
rate of unemployment and underemployment, a large public sector, low
wage and poor working conditions characterize the labour market in
Nigeria. All of which have combined to engender a less than cordial
industrial relations in the formal labour market.
But underemployment and unemployment is area prominent feature of
the informal labour market as well. Consequently, the full potential of a
labour surplus economy are not being fully exploited. In the 1960s and
1970s, the Nigerian economy provided jobs for its teaming population
and absorbed considerably important labour in the scientific sectors. The
wage rate compared favourably with international standards and there
was relative industrial peace in most industries sub-group. Following the
oil boom of the 1970, there was mass migration of people especially the
youth, to the urban areas seeking for jobs. However, following the
downturn in the economy in the 1980s, the problem of unemployment
started to manifest precipatory the introduction of the Naira exchange
rate and the inability of most industries to import the raw materials
required to sustain their output levels. A major consequence of the rapid
depreciation of the Naira was the sharp rise in the general price level,
leading to a weakening purchasing power of wage earners and declining
9
aggregate demand. Consequently, industries started to accumulate
unintended inventors and as natural economic agents, then
manufacturing firms started to rationalize their work force. In the public
sector, an embargo was placed on employment and with the
simultaneous rapid expansion in the educational sector, new entrants
into the labour market increased beyond the absorptive capacity of the
economy. Thus, the objective of the government is to achieve ‘full
employment’, but it failed to materialize. Then official figures of the rate
of unemployment from December, 1998, a total of 66.3% of male and
62.0% of female unemployment were recorded at the urban centre.
While rural centers had an estimate of 47.1% and 45% male and female
job seeker respectively. Many people were frustrated by lack of
employment opportunities they increase those without work and those
who have jobs but want to work longer hours or more intensively, a
considerable size of utility and underutilized labour abounds in Nigeria
and which aim to be brought into the circle.
This shows that Nigeria’s unemployment problem has become chronic
and intractable and should be a matter of utmost national concern.
Government uses employment and wages policies in measuring
government revenue and influence in the labour market, either as a
10
specific objective in itself or as a means of achieving some other
national objectives.
The measures include legislative provisions, administrative actions or the
rigor with which existing regulations are implemented. Government also
adopted wage policies to achieve such macro-economic objective as a
growth, internal and external balance, full employment or a
redistribution of income. Economists are generally in agreement that the
overall aim of government employment policies is to empower the
people and guarantee a minimum quantity of life through gainful
employment. The promotion of gainful employment and stemming the
rising rate of rural and urban unemployment have always been the
allowed national objectives of successive governments in Nigeria, as
various national development plans have articulated. The strategy
adopted for the realization of these objectives have been the promotion
of formal employment, through job-creation in the public sector and to
some extent in the private sector as well, etc. thus, very little attention
has been paid to self employment or self-employment schemes. Indeed,
not until in the last 1980s, when Nigeria began to experience a deep
recession and had to adopt the Structural Adjustment Programmes
(SAP) was any thought given to self employment schemes. Thus, it
11
would be fair to say that Nigeria’s employment policies have been
anchored mainly on the desire to guarantee wage income to her citizen,
through formal job creation measures, etc.
1.3 Objective of the Study
The objectives of the study are as follows:
1. To determine the relationship between unemployment and
economic growth in Nigeria.
2. To ascertain the magnitude of this relationship.
Statement of Hypothesis
The hypothesis that would guide this work is as follows:
1. H0: Unemployment has no significant impact on the economic
growth in Nigeria.
2. H1: Unemployment has significant impact on the economic growth
in Nigeria.
1.4 Significance of the Study
Considering the fact that price stability and full employment are two
conflicting macro-economic goals, the result of this research work
becomes an inevitable tool in the hands of policy makers in Nigeria,
towards achieving the two goals, simultaneously.
This means as standard of living for the general citizen of the country
has improved. One of the macro-economic goals of any country is the
12
actualization of full employment. Therefore, unemployment in any
system is seen as a policy failure and there is always concerted effort on
the part of the government in checkmating the impact of unemployment
in an economy.
The study of unemployment is necessary to the policy makers, student
of economies and politicians. To the policy maker, ascertaining the rate
of efforts in an economy would help in their efforts in mapping out
policies that would bring the economy to the desired height. The policy
maker with the knowledge of the state of unemployment in the system
stands the best chance of controlling it through appropriate initiatives
like poverty eradication programmes and creation of employment
opportunities that touches the lives of the population.
The policymaker uses different measures to prevent unemployment. In
Nigeria, the first measure in changing the pattern of production in
Nigeria, emphasis should be laid on the production of those goods which
uses more labour intensive techniques, leaving aside such areas as
pertain to heavy industries, defence, chemical/power generation, atomic
and oil installations, etc. Labour intensive technique should be adopted
in new field of production, encouragement to small enterprises, full
utilization of excess capacity and policy of decentralization, population
13
control, restructuring the educational system and measures for rural
unemployment, etc the number of underemployed and unemployed is
very large in the rural sector; they are primarily landless agricultural
workers and marginal farmers. The policymaker with the knowledge of
the state of unemployment.
In the system stands the best chance of controlling it through
appropriate initiatives like poverty eradication programmes and creation
of job opportunities that touches the lives of the population.
1.5 Scope and Limitation of the Study
The focus is on the impact of unemployment and economic growth is
derived from the advanced economic right for its original version of
Taylor’s curve to Okon’s law in the US. From the above analysis, much
of the work that focus on the developing countries especially in Nigeria
have differed considerably in their methods logical approach while
econometric approach that spine from (1960 – 2000).
According to Ayenwales Investigation (2005) the main focus of his
investigation is based on sectoral government expenditure and
unemployment which can be seen that little or more information have
been provided by the studies on the supposed relationship, if there exist
14
between economic growth and unemployment especially during this
reform period. This forms a point of departure for this present study as
the scope will include 1981 – 2006. The present study will then focus
the relationship between unemployment and output growth to
determine using a tripartite ordinary least square method which differ
from the studies given the fact that economic reforms that has taken
place from 1990 till now have significance effect both on unemployment
and output and as such effect their supposed relationship etc. Many
economist use annual data to find that unemployment create impact in
output growth which this will look at using time series data in regression
analysis that range between 1981 – 2006.
It was observed that the recorded figure for unemployment significantly
understated the number of the existing labour force who is actually
willing to work at the existing set of wage range. This can be attributed
to the method of registration which bears no incentives of success in
provision of job rather lost. Enghama (2001) said that people without
job and looking for work are many but have not bothered to register as
unemployed. This people will be included in the official statistics for
registered unemployed labour force. Yet from an economics view point,
such people are in the labour force and unemployed. This explains why
15
the official statistics released by the Federal Office of Statistic (FOS)
presented low rate of unemployment based on this analysis, one can see
that unemployment is daused due to the rate of population of the
country that is faster than job opportunities. Due to the population of
every economy is divided into two categories. The economically active
and the economic for work refers to the population that are willing and
able to unemployed. While the economically inactive population refers to
people who are neither working nor looking for jobs, example include
full time student, invalids, housewives.
The legal age for work, old and retired persons; from this present work,
one can see that unemploym[ent is due to gross mismanagement,
excess spending and adverse policies of government of Nigeria.
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