IMPACT OF UNEMPLOYMENT AND INFLATION ON THE ECONOMY OF NIGERIA Economi…
The study examined the impact of unemployment and inflation on the economy of Nigeria.
Relevant literature was reviewed in chapter two to fill the existing gaps in the area of study. It was deduced that scanty studies have been done in this line of research. In chapter three, it was stated that the study employed the descriptive survey design in conjunction with the stratified sampling technique to select 100 staff in Ministry of Finance, Lagos. A well-structured questionnaire was used to collect data from the respondents. The data obtained were analyzed using the descriptive statistic technique and the chi-squared technique was adopted to test the two stated hypotheses.
The study revealed: The social effects of unemployment and inflation are significant on the Nigerian economy. The economic effects of unemployment and inflation are significant on the Nigerian economy. The political effects of unemployment are significant on the Nigerian economy.
The study hereby conclude that The study hereby conclude that there is social, economic, and political effect of unemployment and inflation on Nigeria economy within the time frame. The study hereby suggested; The harmonization of monetary and fiscal policy, vocational education and low or the absence of interest on loans to young graduates, the diversification of the economy and the provision of key economic infrastructure; Emphasis should be made to curb the surging rate of unemployment by making dedicated efforts to put in place labour intensive method of production instead of concentrating on capital intensive methods which will eliminate jobs that can be done by individuals; There must be concrete efforts to ensure that our porous borders are well managed to forestall leakages which is very pivotal for the reduction of unemployment and inflation; thereby improving the level of local production; The need by the government and relevant agencies to formulate policies to encourage self-employment and reduce cost of doing business in the country so as to achieve a high, rapid and sustained economic growth; There is need to formulate policies to ensure relative price stability which may likely improve the welfare of Nigerians; More effort should be channel toward reducing unemployment than stabilizing prices.
1.1 Background to the Study
Unemployment is a common phenomenon in the global economy. It is a major challenge bedeviling developing economies from attaining economic development (Raheem, 2009; Nwokwu, 2015). Developed economies are also bedeviled with the challenge of unemployment, although in little magnitude. The state of unemployment intensifies the needs of those who are willing to get job but unable to find one (Sulaimon, 2015). Unemployment occurs as a result of the inadequacy of jobs failing to correspond with growing population. Those who are employed sometimes develop the fear of being unemployed as a result of job insecurity and employee retrenchment due to poor demand for labour especially in recessionary situation (Akiri, 2016). Unemployment can be linked to any productive factors which is idle and improperly utilized for maximum productivity. With respect to labour, enthusiastic to work (Anyanwu, 2010). Unemployment can be classified in two forms namely voluntary and involuntary. Voluntary unemployment connotes the situation when there are available jobs when an individual chooses not to work because he has means of support or aspiring for a better job with higher remuneration. On the other hand, involuntary unemployment exists when individuals who are able and willing to work at the ongoing wage rate cannot find decent jobs. Unemployment has been regarded as an economic monster and hinders social and economic progress in a country. Unemployment indicates wastage of human resources of a country. Unemployment results in reduced productivity thereby leading to lower income and standard of living (Raheem, 2009). One of the major concerns of successive governments in Nigeria is the rising rate of unemployment in the country. Reducing unemployment to the barest minimum has been the policy focus of the government over the years. Omotosho (2009) averred that the soaring trend of employment and output of South-east Asian countries, especially the Asian Tigers is attributable to their impressive economic performance. The absence of such necessary economic blueprint to boost employment and productivity in Nigeria is the chief cause of unemployment in Nigeria (Sulaimon, 2015). The problem of unemployment in Nigeria going unabated and there is a likelihood of it growing correspondingly with the high rate of unemployed persons per annum.
Looking at the trend of unemployment in African economies, Nwokwu (2013) observed three causes of unemployment which are poor quality of education, the choice of technology which can be either be labour or capital intensive and inadequate attention to capital. The use of machines to replace work done by labour and technological advancement has contributed to the problem of unemployment. The trend of unemployment in Nigeria has adverse effect on the youths and the entire community. A notable feature of unemployment in Nigeria is that it was more severe in the early 1980s than any other period (Akiri, 2016). The major factor that contributes to the poor living standard in developing countries is inefficient utilization of labour relative to advanced countries. Adebayo and Ogunriola (2012) observed that unemployment trend in Nigeria affects job seekers within the ages of 20-24 and 25- 44 years more while there is less prevalence of unemployment on people between 15-19 years, 55-59 years and 65 years and above. This indicates that unemployment has severe impact on young Nigerian graduates. Unemployment does not only impede economic progress, but also social progress. Unemployment fuels political instability and constitute a multidimensional problem and its threat has been regarded as a key developmental challenge facing the country. Unemployment has been acknowledged as a major hindrance to sustainable development in virtually all developing countries. Unemployment reduces the total productivity of an economy and represents poor utilization of manpower resources. The task of reducing the unemployment has been one of the main policy targets of developing countries. The issue of real output and employment in developing nations is indispensable for poverty alleviation and equitable distribution of income and wealth (Omotor & Gbosi, 2006).
The word ‘inflation’ rings bell in the market economy of the world, and has become a household name in most African countries with Nigeria inclusive. Inflation is a monster that threatens any economy although some scholars argued that little of it is required for sustainable economic growth (Jhingan, 2011). However, it is noted that inflation is injurious to economic growth. The issue of inflation is not a new phenomenon because it has remained a major problem in the country for the past three decades. According to Adenuga and Bello (2012), inflation is a monster which threatens all economies because of its undesirable effects. Inflation is generally believed to the persistent rise in the general price level of goods and services in a country over a long period of time.
According to a report released by the Central Bank of Nigeria (2013), there have been four major episodes of high inflation in excess of 30% in Nigeria. The first period was in 1976, which was caused by the drought in Northern Nigeria which destroyed agricultural production and pushed up the cost of agricultural food items coupled with excessive monetization of oil revenue, which might have given the inflation a monetary character (CBN, 2013). The period of the Structural Adjustment Programme in the late 1980s, the effect of wage increases created cost-push inflation. In 1985, inflation peaked at 40% at a time of relatively little growth in the economy. At that time, the government was under pressure from debtor groups to reach agreement with the International Monetary Fund, one of the conditions of which was the devaluation of the domestic currency. The expectation that devaluation was imminent fuelled inflation as prices adjusted to the parallel rate of exchange. Over the same period, excess money growth was about 43% (CBN, 2009). The third high inflationary episode occurred in the last quarter of 1987 and spanned to 1989. This episode was related to the fiscal expansion that accompanied the 1988 budget. However, with drastic monetary contraction initiated by the authorities in mid-1989, inflation fell drastically to 13% in 1991 (CBN, 2013). The fourth inflationary episode occurred in 1993 and persisted through the end of 1995. Though inflation gathered momentum towards the tail end of 1992, it reached 57% by the end of 1994, and by the end of 1995, it was 72.8% (CBN, 2013). This was equally attributed to a period of expansionary fiscal deficit and money supply growth. Between 1996 to 2016, inflation rate has fallen tremendously though still in double-digit.
It is generally believed that the attainment of every other macroeconomic goals such as price stability, full employment and economic growth depends on the maintenance of stable and low inflation and utilization of human resources. It is on this background that this study would investigate the effects of unemployment and inflation on Nigerian economy.
1.2 Significance of the Study
The findings of this study would be useful to policy makers, international organizations and the academic community. Policy makers would realize the prevalence of unemployment and inflation, and their possible implications on the economy. Policy makers would be prompted to formulate sound policies that would effectively tackle these challenges to the least possible minimum. International organizations such as United Nations (UN), World Bank, G7, G20. International Labour Organization (ILO), International Monetary Fund (IMF), Organization for African Unity (AU) etc, would be keen to assist the country in tackle unemployment and inflation. This study also serves as a body of reserved knowledge for academic and students wishing to take further studies on unemployment, inflation and economic growth.
1.3 Statement of Problem
The incidence of unemployment is alarming and scaring because of the implications that accompany it. The rise in the unemployment rate indicates that the measures designed and implemented by past and current government are not producing positive results. It is worrisome to see Nigerian graduates who are educated, qualified and willing to work cannot find job. The situation is becoming hopeless as unemployment continues to rise unabatedly. The National Bureau of Statistics once reported that approximately four million people lost their jobs between 2015 and 2017. This corroborates the assertion that the government is handling the issue of unemployment with levity. A look at the state of the nation, portend more danger with declining likelihood of young graduates become gainfully employed, going with the trend of events in the country, most especially reduced oil prices, slow rate of growth, political instability, insecurity among other factors. The prevalence of unemployment in Nigeria in recent times is getting deeper and more pathetic, affecting all age groups, educational levels and geographical spread (Sulaimon, 2015). Apart from its economic effect of declined national productivity, its social effects includes increase in rural-urban migration, waste of manpower, high dependency ratio, poverty, insecurity, depression, frustration and results in increase in criminal activities such as drug abuse, armed robbery, kidnapping, prostitution, drug trafficking, unwanted pregnancy and cybercrimes (Adepegba, 2011; Akiri, 2016).
Unemployment according to the International Labour Organization (ILO) is among the biggest threat to economic and social stability in many countries (Nigeria inclusive). Nigeria’s unemployment situation is more severe than other African countries like Ghana and South Africa. As pointed out by Subair (2013), South Africa’s unemployment averaged 25.2% over the decade, Ghana -14%, while Nigeria is around 37%. Recent statistics by the World Bank put unemployment rate in Nigeria at 22% and youth unemployment rate at 38% (Asaju, Arome & Anyio, 2016). The International Labour Organization in 2014 stated that the age bracket of 15-35 years accounts for about 60% of Nigeria’s population and 30% of the country’s labour force. The absence of reliable data on unemployment in Nigeria complicates the problem. No organization so far produces statistics on unemployment in Nigeria (Udu & Agu, 2013). Often times, the figures released by World Bank and National Bureau of Statistics negate each other. Raheem (2009) stated that the inconsistency in employment statistics is attributed to the fact that official statistics recognizes only open unemployment. It is therefore necessary for government to devise strategies to combat unemployment as no economy can develop with high rate of unemployment.
There is almost a universal consensus that macroeconomic stability specifically defined as low inflation is positively related to economic growth. However, Nigeria is yet to achieve the objective of price stabilization given its relatively high inflation rate. During inflation, money losses value and people are discouraged from savings which ultimately affect the volume of money in the money market as well as investment which in turn leads to economic growth at large. Various governments had introduced a lot of policy measures in Nigeria prominent among them are fiscal and monetary policies. But despite the intensified use of these policies over the years, inflation still poses a great threat to the economy of Nigeria.
1.4 Research Questions
The study attempts to provide answers to the following questions:
- What are the social implications of unemployment and inflation on the Nigerian economy?
- What are the economic implications of unemployment and inflation on the Nigerian economy?
- What are the political implications of unemployment and inflation on the economy of Nigeria?
1.5 Research Objectives
The broad objective of the study is to examine the impact of unemployment and inflation on the economy of Nigeria. However, the specific objectives are:
- To determine the social implications of unemployment and inflation on the economy of Nigeria.
- To investigate the economic implications of unemployment and inflation on the economy of Nigeria.
- To determine the political implications of unemployment and inflation on the Nigerian economy.
1.6 Research Hypotheses
The operational hypotheses guiding this study are stated as follows:
H0: The social effects of unemployment and inflation are not significant on the Nigerian economy.
H1: The social effects of unemployment and inflation are significant on the Nigerian economy.
H0: The economic effects of unemployment and inflation are not significant on the Nigerian economy.
H1: The economic effects of unemployment and inflation are significant on the Nigerian economy.
H0: The political effects of unemployment and inflation are not significant on the Nigerian economy.
H1: The political effects of unemployment are significant on the Nigerian economy.
1.7 Justification for the Study
The seemingly rising rates of unemployment and inflation, the negative effect it poses on the country and its devastating impact on the economy prompted the need to undertake this study. There has been inconsistency on the impact of unemployment on economic growth in Nigeria in empirical literature. For instance, studies such as Akeju and Olanipekun (2014), Akiri (2016), Enejoh and Tsuani (2017) reported that unemployment has positive impact on economic growth in Nigeria. On the other hand, Yelwa, David and Omoniyi (2015) and Jajere (2016) discovered that unemployment exerts negative impact on economic growth in Nigeria. This represents a sort of confusion on the actual economic impact of unemployment on the Nigerian economy. Also, studies such as Omoke (2010), Fatukasi (2012) and Olalere (2016) submitted that inflation rate has positive impact on economic growth. However, their findings is debatable as it is a well-known fact that inflation rate above a certain threshold (5%) tends to have adverse effect on the economy.
Furthermore, virtually all previous studies concentrated on the economic effect of unemployment and inflation, i.e., its impact on economic growth, and neglected the social and political effects. It should be noted that the implications of unemployment and inflation are not limited to economic effect. This study contributed to literature by examining the social and political effects of unemployment and inflation on the Nigerian economy. Thus, the need to re-assess the economic effect of unemployment and inflation because of inconclusiveness in the findings of prior studies, and also explore the political and social implications of unemployment and inflation on the Nigerian economy motivated this study.
1.7 Scope of the Study
The study covers the 22-year period ranging between 1996 and 2017. The choice of this time frame arises because the study intends to explore the subject matter in recent periods.