Impact Of Unemployment On Economy
Unemployment, a critical socioeconomic issue, exerts profound repercussions on the economy, extending beyond individual hardships to impede overall prosperity. Economically, unemployment disrupts consumer spending patterns, thus curbing demand for goods and services, ultimately stifling economic growth. Moreover, it strains government resources through increased welfare expenditures and reduced tax revenues, exacerbating fiscal deficits. Additionally, unemployment engenders societal instability, fueling crime rates and social tensions, further undermining economic vitality. The deleterious effects of unemployment reverberate across sectors, hindering productivity and innovation, ultimately constraining the nation’s economic potential and impeding its competitiveness on the global stage. As policymakers grapple with addressing this pressing challenge, fostering job creation and enhancing workforce skills emerge as imperative strategies to mitigate the adverse impacts of unemployment on the economy.
The term unemployment can be defined as a situation whereby those who are willing and able to work do not find job. This is mostly seen among greduates of various institutions of learning especially in underdeveloped nation like Nigeria. The study was designed to investigate the impact on unemployment on Nigeria economy (1980-2010). The research focuses on determining the causes and effects of unemployment and how the problem of unemployment in Nigeria will be reduced to a minimal level or even eradicated. It focuses on this objective: to determine the relationship between unemployment and economic growth in Nigeria (GDP).The method of analysis used in testing the hypothesis is the t-test, f-test e.t.c.Data for the study was obtained from the Central Bank of Nigeria statistical bulletin. The major findings were that unemployment has a negative effect on the gross domestic product (GDP) of the Nigerian economy. Some suggestions and policy recommendations were made based on the findings
Title page
Dedication
Acknowledgement
Abstract
Table Of Content
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background Of The Study
1.2 Statement Of The Problem
1.3 Research Questions
1.4 Objective Of The Study
1.5 Research Hypothesis
1.6 Significance Of The Study
1.7 Scope And Limitations Of The Study
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Theoretical Framework
2.2 Theories Of Unemployment
2.2.2 Classical Theory Of Unemployment
2.2.3 Keynesian Theory Of Unemployment
2.2.4 Efficiency Wage Theory
2.2.5 The Search Theory
2.2.6 The Insider- Outsider Theory
2.3 Empirical Literature
2.4 Limitations Of The Previous Studies
CHAPTER THREE
3.0 METHODOLOGY
3.1 The Model
3.2 Model Specification
3.3 Estimation Techniques And Result Evaluation
3.3.2 The Economic Criteria
3.3.3 The Statistical Criteria
3.3.4 Econometric Tests
3.4 Nature And Source Of Data
3.5 Econometric Software Package
CHAPTER FOUR
4.0 PRESENTATION AND ANALYSIS OF RESULTS
4.1 Presentation Of Result
4.2 Result Interpretation
4.2.1 Analysis Of Result Based On Economic Criteria
4.2.2: Analysis Based On Statistical Criteria
4.2.3: The F-Statistics Test
4.3 Econometrics Test ( 2nd Order Test)
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, POLICY RECOMMENDATION AND CONCLUSION
5.1 Summary
5.2 Policy Recommendation
5.3 Conclusion
Bibliography
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
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 (R.A.I Anyawuocha 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 exist when persons who are eligible and willing to work at the prevailing rate of pay are unable to find work. (Anyanwa 1995).
According to the central bank of Nigeria (2004), unemployment rose to 30% during 2004 statistics on unemployment rate.
Unemployment has been seen as a world-wide economic problem and has been categorizedas one of the serious impediments to social progress .Apart from representing a huge waste of a country‟s manpower resources, it generates welfare loss in terms of lower output thereby leading to lower income and well being of the people (Akinboyo, 1987, and Raheem 1993). Unemployment is a very serious issue in Africa (Vandemortele, 1991, and Rama 1998), and particularly in Nigeria (Oladeyi, 1994 and Umo, 1996). The need to avert the negative effect of unemployment has made the tackling of unemployment problems to feature very prominently in the development objectives of many developing countries.
In the study of unemployment in Africa Okonkwo (2005) identified three (3) cause 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 forty (40) men can do manually a machine will only need like five (5) men. Therefore, the remaining thirty five (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 (1999:62), 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%. 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.
The international labour force organization (ILO) defines unemployment as the proportion of the labour force which was available for but did not work for at least one hour in the week preceding the survey period. National Bureau of statistics (N.B.S). Nigeria defines unemployment as the proportion of the labour force that is available for work but did not work for at least thirty nine (39) hours in the week preceding survey period.
Unemployment according to lipsey (1963:456) brings about economic waste and cause human suffering. According to Fadayomi, 1992, Osinubi, 2006, 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 e.t.c. 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
Working with the data from the national bureau of statistics, it indicates that the national unemployment rate in the first quarter of 2007 was 14.6%, compared with 13.7% in 2006. The urban and rural rates were 14.4% and 15.0% respectively compared with 10.2% and 14.8% in 2006. Further analysis showed that the distribution of unemployment ranged from 14.1%vfor the age group of 25-44 to 23.5% for the age group of 65-70. Desegregation according to geopolitical zones showed a very uneven distribution with the south-south zone having the highest unemployment rate of 29.5% and south-west at the rear with 8.5%. Between these extremes were the north-east with 18.5%, south-east 18.1%, north central 15.8% and north-west 14.2%.
It is based on the increasing problem posed by unemployment on individuals and the nation at large that government has been embarking on various policies to control and reduce unemployment but yet has not yielded any positive result, rather it seems to be escalating. Drastic measures must be taken by government to curtail this problem of unemployment. The statement of problem is based on the economic, social and political effects of unemployment
1.3 RESEARCH QUESTIONS
1. Is there any relationship between unemployment and economic growth?
2. Do unemployment have any significant impact on economic growth?
1.4 OBJECTIVE OF THE STUDY
1. To determine the relationship between unemployment and economic growth in Nigeria
1.5 RESEARCH HYPOTHESIS
The null research hypothesis for this work is;
1. Unemployment does not affect economic growth in Nigeria
1.6 SIGNIFICANCE OF THE STUDY
The significance of this study is to make research on the effect of unemployment for most qualified graduates of various institutes of learning and
also qualified skilled labour. The result of this study will provide useful information needed by government to fight unemployment and help create employment opportunities in Nigeria.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
The scope of this study is centred on the effect of unemployment on the Nigerian economy. The research work is also centred on thirty years duration from 1980-2010. The regression analysis was also based on the use of time-series data extracted from the central bank of Nigeria statistical bulletin. The method of analysis used in testing the hypothesis is the t-test, f-test e.t.c. Possible suggestion and recommended were also made.
It is worthy to note that every research work posses alot of problems and limitations. However, the difficulties encountered includes, inadequate and non-availability of relevant data owing to the fact that unemployment in most under-developed countries e.g Nigeria is not evenly distributed and thus varies from one place to another, financial constraint, high cost of transportation and the difficulty in locating the various research centres
Impact Of Unemployment On Economy:
Unemployment can have a significant impact on an economy, affecting various aspects of both the macroeconomy and individual lives. Here are some of the key ways in which unemployment can affect the economy:
- Reduced Consumer Spending: When people are unemployed or fear losing their jobs, they tend to reduce their spending. This decline in consumer spending can lead to a decrease in demand for goods and services, negatively impacting businesses and potentially leading to layoffs or reduced production.
- Lower Tax Revenues: Unemployment can lead to lower tax revenues for the government. As people lose their jobs, they contribute less income tax, and businesses may generate fewer profits, resulting in reduced corporate taxes. This can strain government finances and potentially lead to budget deficits.
- Increased Government Spending: On the flip side, governments often have to increase their spending during periods of high unemployment to provide social safety net programs like unemployment benefits and food assistance. This can further exacerbate budget deficits.
- Lower Economic Growth: High unemployment rates can lead to lower economic growth or even economic recession. When there’s a lack of demand for goods and services due to unemployment, businesses may cut back on investments, which can further stifle economic growth.
- Social Costs: Unemployment can have significant social costs, including increased poverty, homelessness, and crime rates. These social problems can further strain public resources and negatively affect the overall well-being of a society.
- Skill Erosion: Long-term unemployment can lead to skill erosion among workers. As people remain out of work for extended periods, their skills and qualifications may become outdated, making it harder for them to re-enter the workforce when jobs become available again.
- Reduced Productivity: High unemployment rates can lead to a less productive workforce. When people are not working or are underemployed, their skills and talents are underutilized, which can result in a loss of human capital and productivity for the economy.
- Psychological Impact: Unemployment can have a severe psychological impact on individuals, leading to stress, depression, and other mental health issues. This, in turn, can affect their ability to find and retain employment when job opportunities arise.
- Labor Market Mismatch: Unemployment can also lead to a mismatch between the skills of available workers and the skills required by employers. This can result in structural unemployment, where job vacancies exist but are not filled due to a lack of qualified candidates.
- Inequality: Unemployment can exacerbate income and wealth inequality within a society. Those who are most affected by job loss are often those with lower incomes and fewer resources, widening the wealth gap.
Policymakers often use various tools, such as fiscal and monetary policies, to address high unemployment rates and stimulate economic growth during economic downturns. These measures can include government spending programs, interest rate adjustments, and workforce development initiatives to help mitigate the negative impacts of unemployment on the economy.