THE IMPACT OF UNEMPLOYMENT ON ECONOMIC GROWTH IN NIGERIA. (1982-2010)

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

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.

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

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

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.

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

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

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

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

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

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.

1. To ascertain the magnitude of this relationship.

Statement of Hypothesis

The hypothesis that would guide this work is as follows:

1. 1. H0: Unemployment has no significant impact on the economic growth in Nigeria.

1. 1. H1: Unemployment has significant impact on the economic growth in Nigeria.

1. 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.