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EFFECT OF UNEMPLOYMENT ON
ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA
Abstract
Unemployment in Nigeria, particularly in the form of
graduate unemployment, has become pronounced in the last two decades due
primarily to upsurge in the output from tertiary education and inelastic labour
absorptive capacity of the Nigerian labour market for the services of
university and polytechnic graduates. The paper enumerates the various causes
of unemployment in Nigeria in general and among graduates in particular. An
attempt is also made to review past employment policies of the Federal
Government. Also, the reasons given for the failure and limited success of the
policies and programmes are highlighted. These are managerial incapability,
effort duplication, unaccountability, low quality of training inputs,
inadequate funding, policy inconsistency and poor governance, unwieldy scope of
programmes and ineffective targeting of beneficiaries. The paper is of the
opinion that while economic growth must be made employment intensive, all the
economic players such as the government, the private sector, workers, private
individuals as well as non-governmental organisations must pursue policies and
programmes that would attain this objective. Among the immediate, short and
long-term measures to be taken are promotion of informal micro and small-scale
sector enterprises; promotion of entrepreneurship culture through
entrepreneurship development programme; accele-rating the growth rate of the
agricultural sector, linking education and training with labour market
requirements; promotion of enterprise culture which will induce self-reliance,
risk-taking, and a national environment which rewards effort and initiative;
self-employment and curriculum re-engineering. This paper examines causes of unemployment in
Nigeria as well as the consequences and implications of graduate unemployment
in Nigeria. The paper also provides useful suggestion and recommendations on
how to curb graduate in Nigeria. The paper adopts empirical analysis to examine
the causes of unemployment in Nigeria. The data used in this study is of two
type primary and secondary data. However, for the primary data the
questionnaire was used to solicit responses from the respondents.
CHAPTER ONE
1.0.
INTRODUCTION
Educated Unemployment is unemployment among people with
an academic degree. Research undertaken proved that the unemployment, and much
more so, the underemployment of graduates, are devastating phenomena in the
lives of graduates and a high incidence of either, are definite indicators of
institutional ineffectiveness and inefficiency. Since the start of the economic
recession in the US economy in 2007, increasing numbers of graduates have been
unable to find permanent positions in their chosen field. Underemployment among
graduates is high. Educated unemployment or underemployment is due to a
mismatch between the aspirations of graduates and employment opportunities
available to them. It was found that two factors are important regarding
graduate unemployment or underemployment, namely incidence and duration. The
duration of graduate unemployment in particular, appears to be a sharply
declining function of age. It is principally a youth problem, most graduates
find a job after some time, and once they have work experience in their chosen
field, find subsequent job search efforts relatively easier. Given the effects
of the current economic recession in the US, some graduates have gone more than
a year since graduation without finding work in their chosen field, and have
had to rely on odd jobs or work in the service industry, along with living with
room-mates or moving back in with their parents to keep themselves current on
their substantial student loan payments. High levels of long term graduate
unemployment represent a massive threat to institutions of higher education
within the US, which stand to lose a significant degree of social relevancy if
the job market for graduates does not improve within the near future. Economists
are unable to agree on the causes of or cures for unemployment (or anything
else, it seems). The essence of the Keynesian explanation is that firms demand
too little labour because individuals demand too few goods. The classical view
was that unemployment was voluntary and could be cleared by natural market
forces. The neo-classical theory is that there is a natural rate of
unemployment, which reflects a given rate of technology, individual preferences
and endowments. With flexible wages in a competitive labour market, wages
adjust to clear the market and any unemployment that remains is voluntary. The
latter view was that held by Milton Friedman and strongly influenced government
policy in the early 1980s, but without success. There is, of course, no simple
explanation of unemployment and no simple solution.
Unemployment is the greatest challenge to
underdeveloped and developing countries. the phenomenon of graduate
unemployment ( GU) as it is being experienced in the developing countries
constitute a peculiar problems to labor market and the general economy of these
countries. From the content analysis perceptions of job seekers on the issue of
graduate unemployment in a study conducted by Fajana (2000), the following
factors were identified as the major causes of unemployment in Nigeria:
- the long period of initial unemployment among
university graduates in Nigeria , faulty manpower planning and expansion of
educational facilities that have unduly raised the expectations of Nigerian
youths , the economic recession , continued proportionality of expatriates in
employment , the institution of NYSC ,the collective bargaining process,
graduate attitude to some type of jobs attitude to jobs in other location as
well as search behaviour of employers and job seekers, use of capital intensive
technology , wide rural- urban migration , formal – informal sectors
differentials.
All these and many other factors contribute the causes
of graduate unemployment in Nigeria. The objective of this paper is to
critically evaluates all these factors so as to determine their impacts
graduate job seekers in Nigeria and other LDCs.
The purpose of this paper is to examine all the
various factors that contribute to graduate unemployment with the view to
provide suggestions and solutions on how to curb the problem of graduate
unemployment in Nigeria. This paper will also examine how the actions of the
industrial relations actors contribute to graduate unemployment in Nigeria.
This paper intends to achieve the following:
1- To identify the causes of unemployment in Nigeria
2- To examine the consequences and implications of
graduate unemployment in Nigeria.
3- To provide useful suggestion and recommendations on
how to curb graduate unemployment.
4- To provide the framework for further studies in
this area.
5- T o provide guidelines and information for policy
formulation in curbing unemployment in Africa.
1. Previous Research
Fajana ( 2000), and Standing( 1983) opined that
unemployment can be describe as the state of worklessness experienced by
persons who are members of the labour force who perceived themselves and are
perceived by others as capable of work. Unemployed people can be categorized
into those who have never worked after graduation from the university and those
who and those who have lost their jobs thereby seeking reentry into labour
market. However, most of the previous study on unemployment of youths
especially of graduates unemployment in developing countries ( Falae ,
1971,Bhalla 1973;Diejomaoh,1979; Bear and Herve 1966;Bhagwati 1973; Diejomaoh
and Orimolade 1971) have tended to ignore the special case of the university
graduates that are first time job seeker.
1.1.
Background of Study
Undoubtedly, parts of the macroeconomic goals which the
government strives to achieve are the maintenance of stable domestic price
level and full-employment. Macroeconomic performance is judged by three broad
measures- unemployment rate, inflation rate, and the growth rate of output
(Ugwuanyi, 2004).
Unemployment has been categorized as one of the serious
impediments to social progress. Apart from representing an enormous waste of a
country‟s manpower resources, it generates welfare loss in terms of lower
output thereby leading to lower income and well-being (Raheem, 1993).
Inflation on the other hand, has been a major problem in the
country over the years. Inflation is a household word in many market oriented
economies. Although several people, producers, consumers, professionals,
non-professionals, trade unionists, workers and the likes, talk frequently
about inflation particularly if the situation has assumed a chronic character,
yet only selected few know or even bother to know about the mechanics and
consequences of inflation.
Prior to the emergence of what became to be known as the unemployment
and inflation trade-off or Phillips curve in 1958, unemployment and inflation
were considered and treated in economics as distinct subjects. Keynes for
instance described inflation as the excess of expenditure over income at
full-employment level. He contended that the greater the aggregate expenditure,
the larger the inflationary gap and the more rapid the inflation. As for
unemployment, the Keynesian economists hold that an increase in unemployment
reduces income, which reduces consumption, and reduces aggregate output. As a
result, employment can be increased by increasing consumption or investment.
The monetarist on the other hand, explained inflation in
terms of excessive growth of the money supply relative to real output. Their
view on unemployment, however, is framed within the context of Milton
Friedman‟s permanent income hypothesis. Based on the Permanent Income
Hypothesis (PIH), a reduction in employment and current receipts only affects
output to the extent that the anticipated income declines.
Each school of thought offered its own policy solutions.
There were however, no major attempts made to examine inflation and
unemployment simultaneously.
It was not until 1958, following the introduction of
Phillip‟s curve by A.W. Phillips, that traditional economics began to examine
unemployment and inflation simultaneously, thereby postulating a trade-off
between inflation and unemployment- a lower inflation rate must be willing to
put-up with a higher level of unemployment, and vice-versa. However, economists
such as Milton Friedman and Edmund Phelps disapproved Phillips‟ curve thesis,
stating that the trade-off between unemployment and inflation only existed in
the short-run and that in the long-run, the Phillips curve is vertical. This
led to the introduction of the Natural Rate Hypothesis.
Also, empirical analysis carried out by other economists over
the years, have in one way or the other disproved the authenticity of the
trade-off thesis as postulated by Phillips. Both high inflation rates and high
unemployment rates were discovered to co-exist, giving rise to what has come to
be known as stagflation. These twin problems are currently crucial elements of
most Less Developed Countries‟ economic crisis.
Unemployment and inflation are issues that are central to
both the social and economic life of every country. The existing literature
refers to unemployment and inflation as constituting a vicious circle that
explains the endemic nature of poverty in developing countries. And it has been
argued that continuous improvement in productivity- which brings about the
adequate supply of goods and services - is the surest way to breaking the
vicious circle.
The Nigerian experience of the crisis of unemployment and
inflation was delayed until the early - and mid- 1980s with the collapse of oil
prices on which the economy had become dangerously dependent on. Before the
1980s, previous records showed that the Nigerian economy was able to provide
jobs for its increasing population, and was able to absorb considerable
imported labour in the scientific sectors. The wage rate compared favourably
with international standards, the inflation rate was moderate, and there was
relative industrial peace in most industry sub-groups. The oil boom in the
1970s led to the mass migration of youths into the urban area, seeking to get
work. However, following the recession experienced in the 1980s, the available
data revealed that, the problem of unemployment started to manifest,
precipitating the introduction of the Structural Adjustment Programme (SAP),
the rapid depreciation 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 (inflation), leading to a
significant decline in the real wages. The low wages in turn fuelled a
weakening purchasing power of wage earners and a decline in the aggregate
demand. Consequently, industries started to accumulate unintended inventories
and, as a rational economic agent, the manufacturing firms started to
rationalize their market prices. With the simultaneous rapid expansion in the
educational sector, new entrants into the labour market increased beyond
absorptive capacity of the economy. Thus, the avowed government‟s objective of
achieving “full employment” failed.
The research work is therefore intended to access the
applicability of the trade-off thesis in Nigeria.
1.2.
STATEMENT OF THE PROBLEM:
Anthony De Mello, in his famous book titled „Awareness‟
stated that, “Life is a banquet. And the tragedy is that most people are
starving to death”. This situation is prevalent in the Nigerian economy.
Nigeria is richly blessed with abundant human and natural resources, but still
finds itself battling with high unemployment and inflation rates, due to years
of neglect of the social infrastructures and general mismanagement of the
economy. Previous governments in their own capacities have been embarking on
various policies to control inflation and reduce the level of unemployment in
the country. However, government efforts have not yielded the desired results
as these problems are known to be skyrocketing rather than plummeting.
The problem of inflation in Nigeria was brought about by the
oil glut in 1981, which resulted into balance of payment deficits leading to
foreign exchange crisis that necessitated various measures of import
restrictions. These restrictions reduced raw materials for domestic production
and spare parts for machinery operation. The resultant shortage of goods and
services for local consumption spurred the inflation rate to rise from 20% in
1981 to 39.1% in 1984 (Itua, 2000). With the adoption of the Structural
Adjustment Programme (SAP) in 1986, there was a temporal reduction in fiscal
deficits as government removed subsidies and reduced her involvement in the
economy. But as the effects of the Structural Adjustment Programme (SAP)
policies gathered momentum, there was a fall in the growth rate of Gross Domestic
Product (GDP) in 1990 from 8.3% to 1.2% in 1994, with inflation rising from
7.5% (1990) to 57.0% (1994). In 1995, inflation rate rose to 72.8% due to
increased lending rate, the policy of guided deregulation, and the lagged
impact of fiscal indiscipline.
The increase in unemployment in Nigeria, on the other hand,
has resulted to decrease in consumption, due to low income earned by the
citizens, thereby resulting to low production- the inability of firms to sell
their goods, forces them to reduce their output. This has led to decrease in
the economic growth of the nation.
Unemployment also has social consequences as it increases the
rate of crime. Also, being without a job in Nigeria, is as good as losing your
self-respect and self-esteem among the people of your age bracket. The
proportion of workers who are unemployed shows how well a nation's human
resources are used and serves as an index of economic movement (positive or
negative).
In 1999, the unemployment rate was 17.5%, while at the end of
President Olusegun Obasanjo‟s administration in 2007; the rate of unemployment
had reduced marginally to 12.7%. From 1999 to 2007, the rate of unemployment
averaged at 13.1% – still quite high, since 5% is perceived as the accepted
rate. In 2008, the rate of unemployment was almost 14.9% and rose drastically
to about 23.9% in 2011. The unemployment rate has been rising from 1980 to
2011. A recent forecast shows that the rate would continue to increase up to
the year 2020.
In the light of the foregoing analysis, the research work
will be guided by the following question:
1. Is
there any trade-off relationship between unemployment and inflation in Nigeria?
2. Does
government expenditure have any significant impact on unemployment?
3. Do
increases in the gross domestic help reduce unemployment?
1.3.
OBJECTIVE OF THE STUDY:
The primary objective of this study is to examine if there is
any trade-off relationship between unemployment and inflation in Nigeria. Other
objectives include;
a. To ascertain the impact of government expenditure on
unemployment.
b. To examine the impact of gross domestic product on
unemployment.
1.4.
THE RESEARCH HYPOTHESIS:
The study will be guided by the following hypothesis;
1. Null hypothesis (Ho): There is no trade-off relationship
between unemployment and inflation in Nigeria.
2. Null hypothesis (H0): Government expenditure has no impact
on unemployment in Nigeria.
3. Null hypothesis (H0): Gross domestic product has no
significant impact on unemployment in Nigeria.
1.5.
SIGNIFICANCE OF THE STUDY:
Why has unemployment and inflation continued to rise despite
the substantial increase in the nation‟s GDP? Is it that successive governments
neglected the issue of unemployment and inflation or has the twin problems
defied all economic theories? These are questions that need immediate answers,
because unemployment and inflation are current issues that is affecting our
country and which is being discussed by both experts and lay-men alike.
Therefore, this study will be of paramount importance to
economic decision-makers, as it will equip them with the knowledge and skills
needed to tackle the pressing issue of unemployment and inflation in our
country. Also, to those who would like to carry out further research on this
topic, it would be of valuable help in the course of their research.
1.6.
SCOPE OF THE STUDY:
The research work intends to study unemployment and inflation
situation within the Nigerian economy. The study will cover the time period
1998-2014 (a period of 16 years); this is to ensure updated information and to
follow the trend. The range was chosen based on data availability and to have
adequate observation for a meaningful analysis.
1.7.
LIMITATIONS OF THE STUDY:
When carrying out research in social sciences, the data that
one generally encounters are non-experimental in nature, that is, not subject
to the control of the researcher. Therefore, this lack of control may create
special problems for the researcher in pinning down the exact relationship that
exists between unemployment and inflation in Nigeria.
In the course of the study, the researcher tried to access
the CBN statistical bulletin of 2010, but was unable to get data for the
figures of unemployment and inflation in 2011. He therefore resorted to
accessing the internet for the missing figure for 2011. The researcher also
encountered the challenge of inadequate and incomplete information from the
internet and the school library. The researcher was also faced with the problem
of unavailability of funds to carry out the research work.
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