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 61249485 in 2007 indicating an increase of 3.9%. total

employment in 2007 stood at 52326923 compared with 50886836 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. H

0

: Unemployment has no significant impact on the economic

growth in Nigeria.

2. H

1

: 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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