CHAPTER ONE
1.1 THE BACKGROUND OF STUDY
Unemployment has been one of the most persistent and unmanageable 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.
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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.
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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.
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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
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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
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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).
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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
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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
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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
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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
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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:
i. To determine the relationship between unemployment and
economic growth in Nigeria.
ii. To determine the short-run impact of unemployment on
output level in the Nigerian economy.
1.4 STATEMENT OF THE HYPOTHESIS
i. HO: Unemployment has no significant impact on economic
growth in Nigeria.
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ii. 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.
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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.
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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.
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