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.
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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
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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
2.2.4 Effects 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
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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
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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
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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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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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