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PROJECT TOPIC: AN EMPIRICAL ANALYSIS OF THE IMPACT OF UNEMPLOYMENT ON NIGERIA ECONOMY (1970 – 2016)

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Unemployment is one of the developmental problems currently facing all developing economies of the world Adekola, Allen, Olawole, Akanbi &Adewumi, (2016) and Nigeria is not an exception. Unemployment or joblessness occurs when people arewithout jobs and they have actively sought work within the past five weeks (Fajana, 2000). It is the consequence of the surplus of labour supply over labour demand. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labour force.

Njoku &Ihugba, (2011) defined unemployed as the percentage of the percentage of the labour force that is without job, but is able and willing to work. In Nigeria however the ability and willingness to work is not sufficient. It is necessary for the unemployment to be registered with an employment bureau in order to be recognized as unemployed. Yet, from an economic viewpoint, the unregistered unemployed are part of the labour force and are, therefore, technically unemployed. In Nigeria, unemployment data are obtained through labour force sample surveys which ask if the respondent has worked in the week preceding the survey. However, the international labour organization (ILO), realizing the shortcomings of the labour survey as it affects developing economies, such as Nigeria, with a large informal sector, has encouraged a review of the methodology to incorporate further disaggregation of respondent responses to bring out the true rate of unemployment.

Unemployment is generally seen as a macro-economic problem as well as socio-economic problem. Unemployment 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 being unemployed due to job insecurity and retrenchment of workers. There is employment of factors of production if they are engaged in production. The term unemployment could be used in relation to any of the factors of production which is idle and not being utilized properly for production. However, with 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 fully utilized in production (Anyawu 1993). Unemployment can either be voluntary or involuntary. Voluntary in the sense that one chooses not to work because he or she has means of support other than employment. Example is an idle rich man. On the other hand, involuntary unemployment exists when persons who are eligible and willing to work at the prevailing rate of pay are unable to find work.

 

The higher the unemployment rate in aneconomy the higher would be the poverty level andassociated welfare challenges (Emeh, Araboh& James 2012).Unemployment has been grouped into two categories: first,the older unemployed who lost their jobs throughretrenchment, redundancy, or bankruptcy; and second, theyounger unemployed, most of who have never beenemployed (Oyebade, 2003). Unemployment is a global challenge, but worse indeveloping countries of the world, with attendant social,economic, political, and psychological consequences. Itcontributes to low GDP and leads to increase in crime andviolence, psychological effect, adverse effect on health andpolitical instability (Njoku &Ihugba, 2011). Unemploymentin not a recent challenge in Nigeria as the nationalunemployment rate rose from 4.3 per cent in 1970 to 6.4 percent in 1980. This fluctuated around 6.0 per cent until 1987when it rose to 7.0 per cent (Akintoye 2003). Structural Adjustment Program wasbrought in place by the Federal Government of Nigeria in1986 to tackle unemployment challenge. This was a biteffective as unemployment rate declined from 7.0 per centin 1987, to as low as 1.9 per cent in 1995. After this, it roseto 2.8 per cent in 1996, and has been growing worse since,hovering between 2.8 and 13.1 per cent between 1996 and2000 (Njoku &Ihugba, 2011). Unemployment rate inNigeria is presently growing at the rate of 16 per cent annually with the youth impacted the most and accountingfor three times the general unemployment (Doreo, 2013).

In the study of unemployment in Africa, Okonkwo (2005) identified 3 causes of unemployment, the educational system, the choice of technology which can 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 problems in the sense that what for example 40 men can do manually a machine will only need like 5 men. Therefore, the remaining 35 are unemployed;more so, lack of enough education and skill to have access to credit and capital. One particular feature of unemployment in Nigeria is that it was more endemic in the early 1980‟s than any other period.

According to Udabah (1999) cited in Nnabuihe,  (2013), the major factor contributing to low standard of living in underdeveloped countries in their relative inadequate or inefficient utilization of labour in comparism with advanced nations. Unemployment rate is measured by the proportion of the labour force that is unemployed 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%. In 2008, unemployment rate increased from 3.9% to 12.7%. In 2009, 2010 and 2011 unemployment rate still increased to 19.7%, 21.1% and 23.9% respectively in Nigeria (IMF, 2014).  According to World Data Atlas (n.d.), unemployment in Nigeria rose to 34.44% in 2016. The labour force consists of the number of people ageing 18 and over who are employed (that is, those who currently have jobs) and unemployed (those who do not have jobs but who are actively looking for work).Individuals who do not fall into either of these group such as retired people and discouraged workers are not included in the calculation of the labour force.

Unemployment according to Agbodike brings about economic waste and cause human suffering. According toOsinubi, (2006) as cited in Nnabuihe, (2013), unemployment is as a result of the inability to develop and utilize the nations manpower resources effectively especially in the rural sector. The socio-economic effect of unemployment includes: fall in national output, increase in rural-urban migration, waste of human resources, high rate of dependency ratio, poverty, depression, frustration, all sorts of immoral acts and criminal behaviour e.g. prostitution, armed robbery etc. The social effect of unemployment brings to light the need to proffer possible solution to salvage our nation Nigeria.

1.2 Statement of the Problem

 

One of the greatest challenges of sub-Saharan economies today, especially Nigeria is the episode of unemployment that has maintained a rising trend over the years. From time immemorial, thesubject of unemployment has always been an issue of great concern to the economists, policy makers and the economy at large. 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 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 during 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 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 centres 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 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 when Nigeria began to experience a deep recession and had to adopt the Structural Adjustment Programmes (SAP), Subsidy Re-investment Programme (SUREP) and presently agriculture was any thought given to self-employment schemes. Thus, it 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.

The problem includes threat to peace, escalation of crime rate, migration, waste of manpower, increase in dependents and reduction in investment. The unemployed constitutes available book for political trouble shooters in a country, engage in armed robbery and prostitution, the unemployed also waste their manpower which negatively affects economic development.

The research problem therefore, is to find out the impact of unemployment in Nigerian economy. It would also be pertinent to note the effect of unemployment on the GDP of Nigeria which is a measure of the country’s overall economic output.

1.3 Objective of the Study

 

The main objective of this study is to empirically analyse the impact of unemployment on Nigerian economy.The specific objectives of the study are:

  1. to determine the relationship between unemployment and economic growth in Nigeria from 1970 – 2016 using dynamic econometric techniques.
  2. to ascertain the relationship between labour force and economic growth in Nigeria

1.4 Research Questions

  1. What is the relationship between unemployment and economic growth in Nigeria?
  2. What is the relationship between labour force and economic growth in Nigeria?

1.5  Statement of Hypotheses

The hypothesis that would guide this work is as follows:

H01: Unemployment has no significant impact on the economic growth in Nigeria.

H02: Labour force has no significant impact on the economic growth in Nigeria.

1.6 Scope of the Study

The focus is on the impact of unemployment on economic growth in Nigeria. In any research study of this nature, there is normally the enthusiasm to touch as many areas as possible which are connected to the various needs of such study.However, this study will examine mainly the impact of unemployment on economic growth of Nigeria and the magnitude of the relationship covering the period of 1980 to 2016.

1.7 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 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.

This study on unemployment will be beneficiary 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 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.

1.8 Organization of the Study

This work will be organized in Six (6) chapters:

Chapter 1 of this study introduced the problem statement, objective and described the specific objectives addressed in the study as well as design components while chapter 2 presents a review of conceptual literature on unemployment and the Nigerian economy.Chapter 3 presents theoretical literature review, empirical literature review, limitations of previous studies and theoretical framework while chapter 4 presents research techniques, model specification, method of data analysis and sources of data and collection

Chapter 5 contains an analysis of the data and presentation of the results while chapter 6 offers summary findings, policy recommendation, limitations of the study and indications for further research.

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