Unemployment Problems in Nigeria – Factors that Affect It

Unemployment Problems in Nigeria – Factors that Affect It

Unemployment Problems in Nigeria – The problem of unemployment will reduce, as economics of most developing nations recover from the recent global, recession, while million are likely to remain jobless in spite of the improvement, due to variety of structural reasons.

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Moreover, there is a disturbing trend in many developing economics towards long term employment especially among youths. The development calls for serious efforts to contain this phenomenon to arrest the continuous decline in living standards and avert a break down of social cohesion.

For further, detail discussion of this research four factors have been identified and will be used to explain the unemployment problems in Nigeria. The identified factor includes:

(1)   Disposable income

(2)   Interest rate

(3)   Government expenditure

(4)   Money supply

An increase in disposable income leads to a fall in the level unemployment. This simply means that increase in demand for goods and services leads to expansion in production and work force. (Keynes 1936,Kahn 1993, Bean 1994). A decrease in disposable income will have a reverse effect. It follows that disposable income and unemployment have an inverse relationship. Government expenditure and money supply also have inverse relationship with unemployment (Ojo 1995, Anyanwu 1995, Barro 1980, Keynes 1936). However, interest rate has a direct relationship with unemployment by increasing cost of production, which discourages the private sector from maintaining large work force (Sanus 1997, Ojo 1995). The variable stated above have been analyzed and closely provide the essential basis for the relationship between unemployment and variable of money supply and federal expenditure.

The position of the classical economics of the 1920’s and 1930’s was that of the moderate monetarists which assume that; market have a tendency to clear; price and wages are fairly flexible and therefore disequilibrium unemployment is merely a temporary phenomenon.

While the new classical economists take this further, they as well assume that market clear virtually infamously. There is thus no disequilibrium unemployment even in the short-run-all unemployment therefore is equilibrium unemployment or voluntary unemployment as new classical economists tend to call it.

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There can be disequilibrium underemployment, there can be disequilibrium over employment, what we intend by those terms simply to denote the direction of the discrepancy from the equilibrium employment rate and not to connote necessarily any alleged superiority of the equilibrium employment rate. An increase of aggregate demand, to the extend that it catches supplier of labour services unaware of the corresponding rise, in the mean demands for their services at prevailing money fee, will bring about a decrease of intermittent unemployment, suppliers of workers who happen to have been idle will respond to the demands for their services by accepting employment at their standard rates.

The operational significance of the disequilibrium lies in the response of the prices set by the suppliers of the services. With the accumulated experience of a systematic change in the frequency demands, workers will begin gradually to revise in the appropriate direction their estimate of the mean of the probability distribution of demand and accordingly to revise in an appropriate direction  their standard fees. To maintain the same disequilibrium  the corresponding amount of over employment therefore, the government would have continuously to jade up aggregate demand at such a speed as to keep steadily ahead of the rise of fees for labour services.

At some strain of the imagination, we can imagine that workers never learn that they must jog just to stay even and run to get ahead. In that case these will exist some steady rate of inflation that can sustain a disequilibrium at the specified level of over employment. And analogously, there will exist some steady rate of deflation that will sustain a given amount of underemployment. Once again, the concept of a monetary Philips curve relating level of unemployment to the rate of inflation emerges. But again this relation assumes the absence of adaptation to a change in the trend of money wage rates and money prices.


The empirical literature of this research, analysis the variety of factors in which unemployment rate is depended upon as well as some hints on the causes of unemployment.

Sanus (1997), studied the role of interest rate during the period of financial deregulation in Nigeria (1986-1993). Interest rate has a positive relationship with unemployment; (ie) a lower interest rate will encourage private investment spending will increase the demand for labour and reduce unemployment in the economy. To other words, interest rate must be towered to allow manufacturing sector expand production through cheaper loans. The deregulation policy I Nigeria, however exerted upward pressure on interest rate on saving which rose form 12.5 percent in 1988 tom 17.5 percent in 1990. the increase moderated between 1990 & 1992 as commercial and merchant banks’ liquidity position improved in 1993. the average rate of interest again increase dramatically. For instance, the average inter-bank rate was between 60 and 120 percent and saving deposit rate ranged between 25 and 60 percent in commercial banks. In the case of merchant banks, the prime lending rate was between 60 and 80 percent during the period.

On the whole, the period 1986-1993 was characterized by considerable increase in interest rate. The high interest rates had adverse effect on the manufacture sector. The sector which ought to significantly reduce unemployment rate has to operate under escalating cost of production, private sector managers opted for reduction in overheads, especially personnel cost. This led to not loss of jobs in the economy which further worsened the unemployment problem. Sanusi reduced by lowering interest rate.

Katz (1994), arques that government programs to enhance the skill, adaptability and mobility of the labour force could help to reduce rate of unemployment prevailing the developing economies. He identifies two key element to such strategy.

The first element is the restructuring of education system to improve the quality of training. This entails giving young people vocational orientation that could encourage them to be self – employed. The second element is to help displaced workers get now jobs. Job search assistance for such workers is an inexpensive way to reduce unemployment, which is due to the considerable time spent in moving from one job to another. In addition, helping worker start their own business has also been found worthwhile for a small proportion of displaced worker who have the willingness and ability to get engaged in business ventures.

Ike (1980) attributed unemployment problem in Nigeria to tribalism and religious dichotomy where people are more favoured only in their state or in the area where his religion is highly dominant. He defined unemployment as a situation where the output of a person is appreciable to less than what he is capable and willing to produce. He reasoned that on the basis of his research on agent of unemployment he discovered that demography population explosion psychological maturity and haphazardly articulated political and economic factors have been pointed out as agents of unemployment.

On the economic causes be looked at government policies on industries especially the private sector which lacked the incentives for growth through tight inflation, money supply and federal expenditure (etc) all of which inhibit the creation of job opportunities. The Philips curve unemployment seem to present government with a simple policy choice – they could trade off inflation against unemployment. Lower unemployment could be bought at the cost of higher inflation and vice versa.

Sloman (1997), points out two broad approaches to tacking unemployment market oriented and interventionist. A market oriented approach involves encouraging people to “get on their bikes and look for jobs, if necessary in other parts of the country”. It involves encouraging people to adopt a more willing attitude towards retaining and if necessary to accept some reduction in wage. An intervention action to match jobs to the unemployment. To example are providing grants to firms set up in area of high unemployment and government funded training schemes. He also pointed out that one remedy to frictional unemployment is for there to be better job information. This could be provided by government job centers of private employment agencies or by local and natural Newspaper.

Bean (1994), advocate that unemployment rate can be effect by the use of appropriate macroeconomics policies. He maintains that the policies should nonetheless be used to ensure aggregate demand grows rapidly enough to absorb the expanding aggregates supply to labour. According to him, expansionary federal expenditure policies might be ineffective because of the resulting budget deficits, which may encourage serious inflation instead of generating employment. The responsibility for creating adequate demand for labour level of inflation might be manifested but certainly not sufficient to discourage employment growth is stifled by aggressive wage demand a temporary income policy should be stabilized to enhance the effectiveness money supply as an instrument for reducing unemployment.

Ouorie (1992), blames the current unemployment situation in Nigeria to non-functional educational system in the country. He argued that the educational system in Nigeria is not geared toward the production of self reliant graduates who can contribute effectively to the growth of the society.

Soderten (1980), argues that in most of the less developed countries, the rate of growth of industrial employment is low. Some countries like Mexico and Taiwan had an annual increase in their industrial labour force around 5 percent yearly from 1950-1960 as did Pakistan which had a very small industrial base to start from other major countries such as India, Brazil and Argentina had much lower growth rate of industrial employment. As the increase in urban population was much faster in these countries, unemployment increased. Some of the reasons for the increase in unemployment were intimately linked to the process of import substitution.

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 This article was extracted from a Project Research Work Topic “THE EFFECT OF FEDERAL EXPENDITURE AND MONEY SUPPLY ON THE RATE OF UNEMPLOYMENT.”

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 Unemployment Problems in Nigeria – Factors that Affect It



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