Academic journal article IUP Journal of Applied Economics

Persistence of Unemployment in Nigeria: The Role of Output Growth and Population

Academic journal article IUP Journal of Applied Economics

Persistence of Unemployment in Nigeria: The Role of Output Growth and Population

Article excerpt

In spite of the consistent growth in GDP in Nigeria over the past two decades, and given the fact that the country is the richest in Africa in terms of its natural resources and the second richest in terms of GDP, the country still battles with chronic unemployment. This study investigates both descriptively and empirically the role of GDP and population in determining the level of unemployment in Nigeria between 1970 and 2010. The variables employed in the study are GDP, inflation, labor force, employment and public debt to GDP ratio. Employing an error correction model, the study finds that output growth in Nigeria did not have as high an influence on unemployment growth as labor force growth had on it. Considering the high adjustment rate of unemployment disequilibrium (72% per year), this study shows that unemployment in Nigeria adjusts fast and has a consistent path.

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Introduction

Though Nigeria has achieved consistent growth over the past two decades and is the richest in Africa in terms of its natural resources and second richest in terms of GDP, it continues to battle with chronic unemployment and abject poverty-a phenomenon referred to as 'jobless growth'. This phenomenon is paradoxical and need prompt measures by the government and policy makers. In the recent times, concentration has been on investigating the likely reasons why consistent output growth failed to generate enough employment opportunities to reduce unemployment rate in Nigeria. Statistics show that output growth between 2003 and 2010 in Nigeria was 7.58% on the average. However, unemployment rate has also been on the increase moving from 11.2% in 2003 to 21.1% in 2010, showing an average annual growth of 7.78%. Interestingly, according to World Bank ranking in 2010, Nigeria occupied 46th position in the world in terms of total GDP, but given the population status of the country, it ranked 36th in Africa and 171st in the world in terms of GDP per capita. Nigeria is the most populous country in Africa and the most populous black nation in the world with an estimated population of over 162 million (in 2011). Nigeria has 2.3% of the world's population, and by implication, one in every 43 people on the planet is a Nigerian. Studies in the past have tried to investigate the long-run relationship between economic growth and unemployment. The link between the two macroeconomics variables was initiated in the popular Okun's law (Okun, 1962) which suggested the existence of a negative correlation between GDP growth and unemployment. Generally, going by the literature, the relationship varies overtime and across countries. Earlier studies like Lucas and Prescott (1974), Davis and Haltiwanger (1990), and Pissarides (1990) among others, had a similar inference that increased growth due to advancement of knowledge is likely to produce an increased rate of job-turnover, and as a result a higher natural rate of unemployment. Considering more recent studies, Lee (2000) and Solow (2000) argued that unemployment in many of the European countries is the result of lack of demand. However, Phelps (1968) implied in his study that natural rate of unemployment is independent of the rate of productivity growth. A later study, Layard et al. (1991), consistent with Phelps, did not even consider the rate of economic growth as a determinant of unemployment rates in the OECD countries. To reconcile the two stands above, Aghion and Howitt (1994) showed how unemployment is affected by growth both directly through the job-destruction rate (which they called 'creative destruction effect'), and indirectly through its effects on the incentive for firms to create job openings and hence on the job-finding rate (which they called 'capitalization effect').

Population is defined as the number of people residing in a particular location at a particular time period. Therefore, it becomes necessary to know what effect a continuous increase in population relative to resources can have on the economy (employment in the case of this study). …

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