IMPACT OF UNEMPLOYMENT ON ECONOMIC GROWTH IN NIGERIA

Abstract

The objective of this study is examines the impact of unemployment on economic growth in Nigeria from the period 1981 to 2020, using time series annual data Gross domestic product (GDP), Unemployment (UEMPL), Volume of Import and Export (VOIE), Inflation (INF) as well as Exchange rate (EXR). The data was sourced from the publication of the Central Bank of Nigeria

(2020) and the World Bank (2020). The study employed Augmented Dickey-Fuller unit root test, Ordinary Least Square, as well as Granger Causality Test. The result of the unit root test result indicate that INF is an I(0)variable implying the it is the only variable that is stationary at level but the rest of the variables are stationary at 1(I), and the result of  Ordinary least square shows that there is positive and significant relationship between unemployment and economic growth in Nigeria. Granger causality shows the existences of bidirectional causal relationship between unemployment and economic growth in Nigeria, Based on the findings, the study shows that there is long relationship between unemployment and economic growth in Nigeria during the period that the study covered.   

 

Key word: Unemployment, unit root test, Cointergration, Ordinary Least square, Granger

causality.

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Unemployment is mainly viewed as socio-economic and macro-economic problem. It occurs due to low availability of job spaces or few amounts of jobs that will cater for a growing population which in turn affects those that are unemployed and those that are employed as well. The persons that are employed live with the fear of losing their jobs as a result of retrenchment of workers or generally speaking insufficient job security. The term Unemployment could be used in regards to any factors of production that has not been properly utilized for production. Though, in terms of labour, unemployment occurs when people who are capable and willing to work could not secure a job. Labour that is not fully used in production or operating below its expected capacity is said to be underemployed. (Anyawuocha, 1993).

Today, unemployment has become a major global issue demanding that need a lot of attention from each and every society, though the impact of unemployment is becoming more devastating as well as problematic to the entire developing nation in the world  (Wamukonya, 2003). The rate of unemployment in Nigeria is about 19.7 percent (National Bureau of Statistics (NBS), 2012). Acording to Ndubisi and Nwankwo (2013), George and Oseni (2012) and Ferindum and Akindekle (2006), unemployment is one of if not the key problem that is challenging the Nigeria-economic development. The level of unemployment in Nigeria today is the major problem or concern of the policy makers, economist, economic managers, government as well as individuals in the (Bello, 2003). This initial philosophy on economic issues did not fail to provide a central point of consideration on the undesirability

 

Of unemployment (Njoku and Ihugba, 2011).

Unemployment has been defined as a state in which people that are willing, able to work are not or unable to find proper paid job (Fajana, 2000). The same writer went ahead and says that, the higher the growth on unemployment in an economy, the higher the level of poverty rise and associated welfare challenges. However, the number of people in any country is divided into two groups; the economically active and the economically inactive.

According to Njoku and Ihugba (2011), the economically energetic group (Labour force) are the group are those who are able and capable of working, including those people that are vigorously involved in the production of goods and services and those who are not engaged as well. On the other hand, the economically inactive group or people refer to those that neither people who are not eyeing for jobs nor those who are not able as well as having willing due to some health problems or challenges. To further buttress this, International Labour Organisation (ILO) defined the unemployed as whereby there is high number of the economic people active population who are not employed but have the capability as well as the wiliness to work, which including people who were sacked in their work places and those who have decided to left work on their own (World Bank, 1998).

The main factor that is dragging down the economic standard of living in developing countries is the high number of people that are unemployed, rate relative to the developed countries. Unemployment rate refers to the percentage of people that are unemployed that are in the labour force. It is derived by dividing the number of those that are currently unemployed by the number of people in the labour force of a giving economy. The term labour force can be said to as the total number of people that have reached working age, mostly 18 years and above who are employed and the total number of people that are unemployed, but are currently seeking for jobs.

The effects of unemployment in an economy include; the decline in national output, lower standard of living, poverty, wastage of human resources, depression, and high crime rates.  These effects create the need to find possible solutions to tackle the problem of unemployment in Nigeria.

In order to determine unemployment that exists in an economy, economists’ divides unemployment into four (4) categories; frictional, seasonal, structural and cyclical unemployment.

The major factor that determines unemployment in Nigeria is the population growth increase relative to the stage of development and technological growth of the country. Voluntary decisions could also lead to unemployment. Voluntary unemployment occurs when individuals decide not to take a job at a particular wage rate due to one reason or another, and hence remain unemployed. This problem may be solved by increase of the wage rate and individuals reducing their expectations.

 

1.2       STATEMENT OF THE PROBLEM

The data from international monetary fund (IMF) and that of national bureau of statistics reveals that, the rate of unemployment in 2014 was 7.8% while in 2015 it increased to 10.4%. Furthermore in 2016 it had a higher increase to 14.2% at Q4. Moreover, the data shows that the rate of unemployment in the urban and rural area was 18.4% and 12.3% respectively in 2016 compared to 10.5% and 30% in 2019.

Due to the increasing negative effects posed by unemployment on people and country as a whole, government has been adopting numerous ideas or tactics to help reduce and control the issue of unemployment, but the problem seems to be increasing rather than it producing positive results. Accurate policies need to be adopted in order to solve this problem of unemployment. The statement of the problem is based on the political, social as well as economic effects of unemployment.

1.3       RESEARCH QUESTIONS

1. Does unemployment have any relationship with economic growth?
2. Is there any causal relationship between unemployment and economic growth in Nigeria?

1.4       OBJECTIVES OF THE RESEARCH

The broad objective of the study is to examine the impact of unemployment on Nigeria’s economic growth. To achieve that, the following specific objectives were pursued:

1. Investigate the relationship between unemployment and economic growth and in Nigeria.
2. To examine the causal relationship between unemployment and economic growth in

Nigeria

1.5       Statement of Hypothesis

The following key research hypothesis would be address in the case of the study:

H₀: Unemployment has no relationship with economic growth.

    H₀: There is no causal relationship between unemployment and economic growth.

1.6       Significance of the Study

The significance of the study is to establish the impact of GDP on unemployment in Nigeria. In view of the fact that price stability and full employment are two conflicting macro-economic goals, the result of this study becomes an important tool in the hands of the policy makers in

Nigeria in order to achieve the two goals simultaneously.

As living standard of a country increases, one of the important macro-economic objectives is the attainment of full employment. So, unemployment is viewed as a failure caused by the policy makers. Hence, efforts are made by the government to control the impact of unemployment in an economy.

The study of unemployment is very important to economics students, policy makers and also politicians. The study of the unemployment rate of an economy helps in setting up policies that would help an economy reach a desired level.

The study is of benefit to the government in term of policy making, this work will be added to knowledge and service so that other research, scholars, writers who want to out similar research or study on this in the future.

1.7       Scope and Limitation of the Study

The main attention of this study is Nigeria, which examine the impact of unemployment on the economic growth, and the study cover the period of 1981 to 2020. The annual on GDP, unemployment, inflation, exchange rate, volume of export and import are used in the study. The main objective of this study is to study the as well as examine the relationship as well as the nature of the relationship between the variables. The estimated techniques to be used are ordinarily Least

Square as well as Granger Causality.

1.8       ORGANIZATION OF THE STUDY

The study is organized in five chapters. Chapter one provides the background to the study, state the problem, and provides the objectives, significance and the limitations of the research. Chapter two provides the Literature review and theoretical framework. Chapter three describes the methodology used in this study, describing the model adopted and the variables that will be used in this research. Chapter four presents the results and interpretation of the regression results. Chapter five is the final chapter, and it concludes the study by summarizing the findings, stating the limitations of the study and recommending how the study could be further enhanced.

IMPACT OF UNEMPLOYMENT ON ECONOMIC GROWTH IN NIGERIA

 

 

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