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UNEMPLOYMENT AND INFLATION IN NIGERIA AN EMPIRICAL INVESTIGATION, 1990-2004.





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UNEMPLOYMENT AND INFLATION IN NIGERIA
AN EMPIRICAL INVESTIGATION, 1990-2004.


ABSTRACT
The problem of unemployment and inflation is significant in Nigerian economy. The essence of this study was to carry out an empirical investigation, which it did on the nature of unemployment and inflation in Nigeria case within the period of 1990 to 2004. On the processes of the investigation, unemployment was distributed in terms of rural urban, education, and state and age distribution. Factors that help in causing more inflation and unemployment were identified and the type of relationship that existed between them was also identified. A quantitative approach in terms of regression analysis was identified in the course of the study, through the collection of secondary data on unemployment and inflation rates, from the period of 1990 to 2004 that was later analyzed. The hypothesis test carried out confirmed a zero relationship between unemployment and inflation and, inflation not to have any impact on the unemployment, from 1990 to 2004. The research also revealed also revealed that the government was responsible for initiating these factors that help in causing unemployment and inflation with the period under review, i.e. 1990 to 2004.


TABLE OF CONTENTS
Title Page                                                                                 i
Certification                                                                             ii
Dedication                                                                               iii
Acknowledgment                                                                     iv
Abstract                                                                                   v
List of Tables                                                                           vi
CHAPTER ONE: INTRODUCTION
1.0   Background of the study                                                  1
1.1   Statement of the problem                                                6
1.2   Objectives of the study                                                     7
1.3   Research hypothesis                                                                8
1.4   Significance of the study                                                  8
1.5   Delimitation of the study                                                 9
1.6   Method of study                                                               9
1.6.1        Method of data collection                                                10
1.6.2 Method of analysis                                                          10
1.7   Organization of study                                                       10
1.8   Definition of terms                                                           13



CHAPTER TWO: THE LITERATURE REVIEW AND THE THEORETICAL FRAMEWORK OF INFLATION AND UNEMPLOYMENT
2.0   Definitions of concepts                                                    14
2.1   What is unemployment, unemployment rate and labour force
                                                                                                14
2.2  The concept of full employment                                                14
2.3   The concept of underemployment                                    16
2.4   Theories of unemployment                                                      17
2.5   Dimensions of unemployment                                         18
2.5.1 Types of unemployment                                                  21
2.6   The nature of unemployment problems in Nigeria in 1980s and how it led to the period under review                                       22
2.6.1 Introduction                                                                    22
2.6.2 The nature of unemployment, 1990 to 2004                   23
2.6.3        The cases of unemployment of the period under review   30
2.6.4 NDE and unemployment in Nigeria, 1990 to 2004         32
2.7   The theories of inflation                                                   33
2.71. Demand pull inflation                                                     34
2.8   Inflation of the period under review                                 34
2.9   Management of inflation in Nigeria                                  37
2.10 The relationship between inflation and unemployment   38
CHAPTER THREE: THE ANALYTICAL TECHNIQUES AND MODEL SPECIFICATION
3.0   Introduction                                                                     39
3.1   Analytical techniques of the study                                   39
3.2   Model specification                                                          39
3.2.1 The dependent and independent variables                     40
CHAPTER FOUR: AN EMPIRICAL ANALYSIS OF UNEMPLOYMENT AND INFLATION IN NIGERIA, 1990 TO 2004
4.0   Introduction                                                                     41
4.1   Data presentation                                                            41
4.2   Presentation of results                                                     43
4.3   Discussion of results                                                               44
4.4   Discussion of findings                                                     45
4.5   The implication of our findings                                                46
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0   Summary                                                                         47
5.1   Conclusion                                                                      48
5.2   Recommendations                                                           48
References
Bibliography
The appendix of chapter of four


LIST OF TABLES
1.0   Nigeria underemployment rate by rural urban area classification                                                                    17
2.0   unemployment rate by rural urban and national classification, 1990 to 2004                                                                        23
2.1   The composite distribution of unemployment by educational level, 1999 to 1997                                                                25
2.2   Registered unemployment workers, 1990 to 2004           26
2.3   Unemployment by age distribution, 1990 to 1997           27
2.4   Unemployment rate by states in Nigeria, 1991, 1993 2000, 2004                                                                                   28
2.5   Nigeria C.P.I and inflation rate, 1990 to 2004                  36
4.1   The Nigeria inflationary and unemployment rate, 1990 to 25004                                                                            42
4.2   The empirical results of the collected data                               43


CHAPTER ONE
INTRODUCTION
1.0   BACKGROUND OF THE STUDY
If you ask any Nigerian today, what the major macro-economic problems of the nation are; the answer may be inflation or unemployment. Thus, inflation and unemployment is often seen as a twin brother that is hampering the economic growth of Nigeria. Akpakpan (1999) stated, unemployment and inflation are the two most worrying problems of macro-economy”. Okowa (1999) confirmed that “inflation is a serious problem because of the many negative economic and social impacts that it intend to generate”. In support is Gbosi (1990) who said, “Unemployment is the nation’s major economic problem today, “In general, Akpakpan, Gbosi, and Okowa statements can be used to generalize inflation and unemployment as among the major problems of the macroeconomic of Nigeria.
However, this impression of Nigeria towards inflation and unemployment was not in this form at eth pre-independent period of Nigeria. For instance, according to (Moro, 1995), only since mid -1960s has inflation become so serious and contentious a problem in Nigeria. This period corresponds, on the one hand, to that of fundamental changes in Nigeria’s political history arising mainly from a civil war, and on the other hand, a dramatic yet unprecedence transformation of the Nigeria economy, particularly since the early 1970s.
The manifestation of inflation as a problem to the Nigeria economy became obvious in 1969 that is before the civil war ended, with the inflation rate moving to 10 percent together with its annual average of 9.5 percent consumer price index (CPI). During these periods, from the 1969 to 1971, a sharp increase in general price level of goods and services was an evident as the Nigeria inflation rate moved to 13.9 percent, together with an annual average of 10.8 percent C.P.I. The 1970 inflation rate rose to 16.0 percent and also together with its 12.6 C.P.I.
However, many Nigerians within these periods (i.e., 1971) understood that this sharp increase on the C.P.I of Nigeria economy was as a result of unprecedented increase on the food prices generally. This can be attributed to the civil war effect, especially as the percentage increase on food price rose to be 19.0 percent and 28.5 percent in 1969 and 1971 respectively.
In support of the view point on the above; Udu and Agu (1989) expressed their view that:
“Before the war, a bag of 500 cups of rise cost =N= 14.00. The price went up to =N= 43.00, immediately after the civil war in 1970. Between 1973 and 1975, the price of a packet of St Louis sugar rose from 20k to 55k; a loaf of bread from 20k to 35k; and bournvita beverage from 80k to =N= 1.35”).
Note that before the war (i.e., 1962 to 1973) British pound sterling in Nigeria currency was at equal rate. Like Tom-Ekine (2004) stated, the period 1962 to 1986 was marked by fixed exchange rate control in Nigeria, from 1962 to 1973, the Nigeria currency was pegged to pound sterling on a 1:1 ratio before the latter was devalued by 10 percent.
This situation got worsens as a result of inability of the people (Nigerians) and government to tackle it. This can be seen as Moro (1995) stated that:


The behavior of food prices may have been due to the existence of price control during the period, which probably and induced excess demand for uncontrolled items, thereby forcing consumers to spend their unused resources on the uncontrolled items. And since the prices of the locally produced agricultural food stuffs were not subjected to control, this probably led to an increase in demand for food and thus increased their profitability’.
Also, Moro (1995) has it that,
The simultaneous disruption in the flow of goods in the internal trade markets and in the flow of imported and exported materials was two strong for the anti-inflationary policies to be effective.
From the forging since these periods till now, the general price level of goods and services have been on persistent increment, and thus, have become a problem to Nigerians and their government. This is how inflation paved his way into the Nigeria economy. And it is now cleared that the civil war or military conflict in Nigeria case created a favourable condition for inflation.
Following in the order of time, the case became that the preceding periods of 1969 to 1971, that is after the independent period, which was characterized with high inflationary rate affected the succeeding period, such as the periods of 1973 to 1980, 1981 to 1990, and that of 1991 to 2004, and make inflation to be an internal phenomenon in each of the period, especially as Nigeria became an oil exporting country. To testify situation; the 1975, 1976, and 1977 inflationary rate; of 33.9, 21.1 and 21.5 percent respectively can be used in relation to the 1984 (40.7) percent,1988 (56.0) percent and1989 (50.0) percent, and in addition, to the 1993 (57.2) percent, 1994 (57.0) percent and 1995 (72.9) percent. Although, the 1995 inflationary rate gave a mark-up of 72.9 percent, which is the maximum rate of inflation, Nigeria had experienced since her independent till the time when this research was conducted.
In a characteristic and average justification, the nature of the Nigeria rate of inflation has been a persisting type, although sometimes, it declined may be at a decreasing rate or a normal decreasing rate, but averagely, it is a persisting type.
To complement our study, inflation cannot be treated in isolation without treating unemployment since both of them are twin brothers (Gbosi, 1990). Recalling Gbosi statement, it is necessary to agree that a high rate of unemployment had been a major macroeconomic problem to Nigeria; thus, it demands for public attention and government intervention.
From its (unemployment) traces, according to Fajana, Olaloku, and Ukpong, (1987), disguised unemployment has existed for sometimes in the traditional sectors, although large immeasurable. But, open unemployment in the sense of large numbers of workers completely without work, willing to work, seeking work and being unable to find any opportunities became significant only during the 1960’s. From the 1952 census, which they (Fajana, Tomori, etc) cited, 8.128 million Nigeria males were gainfully employed, where 8.14 million males were of 15 years of age and older. To support their view, “Yesufu estimated that Nigeria in fact suffered from over-employment in the early 1950’s (in the sense that the occupied labour force was greater than the potential labour force), I. Livingstone, O. Teriba and V.P Diejongoh, 1998).
The rationale behind the foregoing is that unemployment in an open-form; really have its ways in Nigeria economy during the 1960s. In continuation of the view of (Fajana and CO). The national manpower board (NMPB) laour force sample unemployed. Although, it was difficult to obtain a quality unemployment statistic data for a comprehensive assessment of the unemployment situation in Nigeria, but the report depicted when unemployment became significant in Nigeria.
In support of the significant nature of growing unemployment rate in Nigeria during 1960s was the increasing number of people who registered with the Nation’s labour exchange seeking work (LESW). According to Fajana (1987)
From 6,317 as at the end of March 1956, registered unemployment almost quadrupled within a decade; the figure as at the end of September 1966 became 23, 904.
This testified that the registered unemployment conducted by LESW showed how unemployment figure of Nigeria to a certain extent moved from 6,317 as at the end of March 1956 to 23, 904 in September 1966. In addition, the succeeding periods suffered the same high level of unemployment as the labour policy of mass retrenchment of personals in the public sector of Nigeria, which was initiated by General Buhari Government in 1983 worsen the situations. This can be observing as the Nigeria unemployment rate mounted to 10.2 percent that 1983.
Generally, it is obvious that from the estimate inception period till the time this research was been carried out, a high unemployment rate and inflationary rate as problems have remained critical in Nigeria situation.
Today many countries especially the developing and underdeveloped ones are experiencing this similar case with Nigeria. Some countries already had experienced it. Brittan at this point cannot be ignoring. In 1982 the British economy suffered a economists called A.W.H. Philips showed that from that time of 1862 to 1957, there was a tradeoff between inflationary rate and unemployment rate in the British economy. That is, an economy (British economy as of that time) can be improve by increasing the inflationary rate the economy with the suitable economic policies, thus reducing unemployment rate, or vice-versa-meaning that there is an inverse relationship between unemployment and inflationary rate (within a constraint of short-run period).
Using the above as a reference, it is necessary to check if Nigeria at recent could has a similar result with her colonial master (Britain). Although Gbosi (1990) published an empirical evidence of 1977 to 1985, which showed that, there was a positive relationship between inflation and unemployment in Nigeria case. Despite his findings, Nigeria as a developing country requires a regular test of the relationship between inflation and unemployment in order to be able in formulating an appropriate economic policy that can be used to tackle them since the Nigeria economy like every other is also associated with some certain degree of elements of dynamism, at least it will be necessary to test the relationship between them (unemployment and inflation) at a given interval, let say ten to fifteen years interval.
It is against this background that the urge to carry out this work emanates, to evaluate the causes of inflation and unemployment problems in Nigeria, to know the influence of inflation on unemployment in Nigeria, to know the type of relationship that have existed between two of them (unemployment and inflation), all within the period of 1990 to 2004 and, to recommend some economic policies, which can be used to tackle them.


1.1   STATEMENT OF THE PROBLEM
So far, there has been a lingering thought over many Nigerians to know the aided causes of inflation and unemployment in Nigeria. For instance, to know the factor that was responsible for the high rate of inflation and unemployment in Nigeria, especially as the unemployment rate moved from 1.6 percent in 1978 to 10.2 percent in 1983. On the other hand, the inflationary rate moved from 13.3 percent in 1978 to 23.2 percent in 1983. Again, to determine the relationship them (inflation and unemployment) at least from the period of 1990 to 2004, since Gbosi (1990) empirical evidence of 1977 to 1985 showed that there was a positive relationship between both of them (inflationary rate and unemployment rate). So it will be necessary and sufficient to be testing their relationship at a chosen interval, since the Nigeria economy, like other economy is associated with elements of dynamism (that is, subjected to socio-economic evolution or change). However, testing their relationship between the periods of 1990 to 2004 is necessary and sufficient.
In the Britain case of 1958, there was that observation from the A.W.H. Philips empirical evidence, which showed a trade-off between inflation rate and unemployment rate, thus inflationary control can be used to control or determine the level of unemployment condition-meaning that the Britain inflationary condition has an impact over their unemployment condition between the period of 1862 to 1957, the data he used was of 1942 to 1956.
Relating this Britain experience to Nigeria case as arose the problem of finding if the Nigeria inflationary condition has an impact over the unemployment condition within the period that is under review (1990 to 2004).
Generally, whatever comes out as a result will be useful in economic policy formulation. And it is all these problems discussed above that will form the epicenters of this study.
1.2   OBJECTIVES OF THE STUDY
The objectives of this study are as follows;
1.     To identify and evaluate the aided causes of unemployment and inflation problem in Nigerian within the period under review (1990-2004).
2.     To determine the relationship between inflation rate and unemployment rate in Nigeria from the period 1990 to 2004
3.     To verify whether inflation rate have impact on unemployment rate in Nigeria within the period under review.
4.     To prefer possible recommendation from the study.
1.3   RESEARCH HYPOTHESIS
The formulation of hypothesis is an essential step in any research exercises. It sets the logistics towards the workability of a research design. It is based on this, that the following hypotheses are stated to guide the study.
Given:      The null hypothesis = H0
H01:          There is no positive and significant relationship between unemployment rate and inflation rate in Nigeria case.
HA:           There is a positive and significant relationship between inflation rate and unemployment rate in Nigeria case.


1.4   SIGNIFICANCE OF THE STUDY
The importance of this study is as follows;
1.     It will enable us to know the factors that are responsible for the high rate of unemployment and inflation in Nigeria.
2.     It is going to review the current relationship between inflation rate and unemployment rate of Nigeria between the period under review. Thus, this can serve a guide in policy formulation.
3.     It is going to identify and recommend some preferred policies, which can be used to tackle the problems of high rate of unemployment and inflation in Nigeria.
4.     It will serve as a reference to other researchers and similar students that are in this course.
5.     It is going to stand as a means of knowledge, as it will contribute to a smaller measure in knowledge.


1.5   DELIMITATION OF THE STUDY
The working data needed for the econometric analysis of this study will cover only the selected period of 1990 to 2004. All other data will not be necessary, but will be only use in a discussing the context of this study at where they are necessary. In addition, financial constraint and in availability of information and time will also contribute to the problems of this study.
1.6   METHOD OF STUDY
This will cover the following
1.6.1 METHOD OF DATA COLLECTION
This is the logical sequence of the method and procedures by which the data collection is carried out. The study shall be empirical; the kind of data required would be quantitative in terms of using economic statistics on inflation rate and unemployment rate for the period of 1990 to 2004. The data sources are mainly of secondary, such as central bank of Nigeria (CBN) annual reports and statistical bulletin, federal office of statistic annual reports of economic indices, federal ministry of labour, employment and productivity, relevant textbooks, articles, journals newspapers and other source regarding to the subject matter.
1.6.2 METHOD OF ANALYSIS
The econometric method of ordinary least square regression analysis is employed as the analytical tool. Such test as R-test, t-test and F-test were performed to establish the relationship between inflation and unemployment in Nigeria within the period under review (1990 to 2004).
1.7   ORGANIZATION OF THE STUDY
To effectively elucidate the objectives to deriving from this study, the structure or organization of this study is arranged as follows;
Chapter One; This covers the proposal of the study, which comprises; the introduction of the study, statements of problems of the study, the objectives of the study, the research hypothesis of the study, the significance’s of the study, the delimitation, organization of the study, and lastly, the definition of terms.
Chapter two: In addition coves the literature review of the study, while chapter three illustrate and explain the analytical techniques and model specification of the study, chapter four covers the mathematical illustration of the study together with its empirical investigation and findings, this has to concern the inflation and unemployment rate of Nigeria, from 1990 to 20004. Lastly, chapter five explained summary, conclusion and recommendation of the study.
1.8   DEFINITION OF TERMS
Consumer Price Index (CPI)
This is an index designed to measure the average change on the retail prices of consumer goods and services, which had been paid by the consumers.
The formula for measuring CPI is present as follows; for instance, in measuring the CPI of a given year
CPI for given year =    
Or
Let  
CPI for given year =         
Thus, the formular is known as “Laspeyre price index”, it compares the cost of buying the “base year market” at the current year prices with the cost buying the same base yet market basket at the base year prices (Akpakpan, 1999).
Inflation
This is a persisting increment in general price level of goods and services.
Inflation Rate
This is the percentage change of inflation trend. In other words, it is the difference between the initial CPI and the current CPI.
Given
CPI0 = Initial CPI
CPI1 = Current CPI
Inflation Rate =                      

Unemployment
It is a situation where people are capable, willing, and seeking to get work or be employed at a given level of payment, but unable to find any work.
Unemployment Rate
 This is the percentage or proportion of the active labour force that are unemployment.
Given
TU = Total number of unemployed
TL= Total number of the active labour force
Unemployment Rate
(Campbell and Bruce, 1988) 
 







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