EFFECT OF UNEMPLOYMENT ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

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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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