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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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