CHAPTER ONE

1.1 THE BACKGROUND OF STUDY

Unemployment has been one of the most persistent and un-

manageable problems facing all industrial countries of the world. It

has been noted as a macroeconomic and social problem.

In October 1982, the 13th International Conference of Labour

Statisticians adopted a new resolution concerning the statistics of the

economically active employment and unemployment, they defined

unemployment as persons above a specified age who during the

reference period were without work including the unemployed

graduates, school leavers, home makers and other persons mainly

those engaged in non-economic activities who are at the same time

seeking for work and are available for work.

The term unemployment could be used in relation to all the

factors of production with reference to labour. Unemployment

produces both economic and non-economic costs. This cost differs

from individuals and societies.

1
 For individuals most economic cost of unemployment is loss of

income that the persons would have received if employed. For the

societies it is the goods and services that would have been produced

by the unemployed.

Non-economic cost is found among unemployed persons who

experience anxiety, depression and loss of self esteem. A rise in

unemployment rate is associated with high incidence of alcoholism

and drug abuse as well as increase in crime and suicide rate, high

rate of family divorce and incidence of child abuse.

The basic economic cost of unemployment is foregone output

when the economy fails to create enough jobs for all who are able

and willing to work; potential production of goods and services is

greatly lost thus unemployment is a waste of manpower.

Economic growth leads to a lower unemployment rate; Okun’s

law indicates that every 1% point by which the actual unemployment

rate exceed the natural rate a negative GDP gap of about 2% decline

in real GDP below its productivity GDP occurs.

According to Briggs (1973) unemployment is the difference

between the amount of labour employed at current wage rate and

working conditions, and the amount of labour hired at these levels.

2
However, Gbosi (1997) defined unemployment as a situation in

which people who are willing to work at the prevailing wage rate are

unable to find jobs. Unemployment is as a result of the inability to

develop and utilize the nations manpower resources effectively

especially in the rural sector (Fadayami, 1992; Osimubi, 2006).

In another view of Jimaza (2001) defined it as a situation

whereby one has no job and is prepared to take a job at the ongoing

wage rate but such job is nowhere to be found.

A rise or fall in wage rate depends on the level or variation in

the unemployment rate, the amount of unemployment in an

economy is measured by unemployment rate which is the percentage

of civilian labour force consist of people between 18years of age or

older who are unemployed or employed. People not included in the

labour force are college students who do not have job and are

looking for jobs; it is possible that an increase in current

unemployment rate alters the long-run equilibrium of

unemployment rate for instance certain unemployed persons may be

excluded from the labour market because their productivity is too

low to make it profitable to hire them even at a much lower wage

rate than the current one.

3
 The controversy over the problem of unemployment revolves

around the distinction between voluntary, involuntary, visible and

disguised unemployment.

However, voluntary unemployment is said to occur when

persons choose not to work or accept job for which they are qualified

at ongoing wage rate because they have means of support other than

employment for instance affluent individuals. Involuntary

unemployment is when persons cannot obtain work even if they are

willing to accept low real wages than qualified workers who are

currently in employment (Arthur, 1968). Visible unemployment exist

when persons is without work but are seeking at a given wage rate.

Disguised unemployment exist when persons are without work but

not openly seeking for work, who will seek for work at ongoing wage

rate if unemployment were much lower.

Despite the contention in the above classification the taxonomy

of unemployment includes a condition of being out of work, an

activity of searching for work, an attitude of desiring a job under

certain situation and needing a job (Levine, 1959).

Unfortunately, there had been little or no economic growth and

development in Nigeria over the period depicted by rising

4
unemployment; the need to avert the negative effects of

unemployment has made the budget on unemployment problems to

feature very prominently in the development objectives of many

developing countries like Nigeria.

Englama (2001), “a person is said to be unemployed when he

or she is able and willing to work and is available for work (that is,

the person is actively searching for employment) but does not have

work.

The international labour organization (ILO) defines the

unemployed as numbers of the economically active population who

are without work but available for and seeking for work including

people who have lost their jobs and those who have voluntarily left

work.

There are three ways to become unemployed, some people are

sacked, others are temporarily laid off and some people voluntarily

quit their existing jobs. But the inflow to unemployment can also

come from people not previously in the labour force, school-leavers

(new entrants), and people who once have a job then ceased even to

register as unemployed, and are now coming back into the labour

force in search of a job (re-entrant) (Beggs, 2000). On the other hand

5
there is a situation in which a worker is employed, but not in the

desired capacity where in terms of compensation hours, it is called a

situation of under employment.

According to NBS, unemployment covers persons age 15 to 64

who during the reference period were currently available for work,

seeking for work but were without work, person is unemployed if he

or she is engaged in the production of goods and services thereby

contributing to the GDP. Unemployment rate rose to 23.90% in the

2011 statistic on unemployment.

According to Lipsey (1963), unemployment brings about

economic waste and causes human suffering. The contributions and

attitude of this economic waste were emphasized by the fact that the

factor services are the least durable economic commodity.

The socio-economic effect of unemployment include fall in

national output, an increase in rural-urban migration, waste of

human resources, high rate of dependency ratio, frustration, poverty

and depression, all sort of in moral activities like criminal behaviour,

prostitution, armed robbery, and rapping. (Adebayo, 1999).

6
 According to Beggs (2000), unemployment can be generally

broken down into several types that are related to different causes

including:

Classical unemployment occurs where wages are too high to

employers due to the main wage laws or trade unions activity.

Frictional unemployment exist where there is lack of adjustment

between demand and supply of labour; lack of necessary skills,

labour immobility, breakdown of plants and machinery, and shortage

of raw material; temporary unemployment arising from the normal

job search process, it includes people re-entering into the job market

after their long absence people who have quit their jobs in search for

better ones; people who have been laid off. Structural unemployment

arises when jobs are eliminated by changes in the structure of the

economy due to technological progress and shift in the demand for

goods and services for instance becoming increasingly computerized

some workers are losing their job at the same time new jobs such as

a computer repairs, technicians and software engineers are

employed. Seasonal unemployment results from seasonal fluctuation

in demand for instance the employment for ice-cream factories is

only for the summer; they remain unemployed during the winter; the

7
agricultural workers who are employed during harvesting and

sowing season remain idle for the rest of the year.

Again, inadequate information causes unemployment and this

is a source of unemployment that cannot be neglected; if people do

not know that jobs are available they will not take them. The major

economic shocks such as the problem of great depression,

unemployment, and under-employment can be avoided through

policy changes; government will stabilize the economy and maintain

continuous economic growth.

1.2 STATEMENT OF THE PROBLEM

The problem of unemployment has occupied the mind of

scholars, economists, policy makers and international organizations

for many years with an increased tension in the last decade. Even

though there are different perspectives to unemployment, there is a

general consensus that reduction in unemployment will lead to good

economic growth and development that will lead to good change

manifested in increased capacity of people to have control over

8
material assets, and obtain physical necessities of life such as food,

clothing and shelter.

According to John Maynard Keynes the progressive

adjustment of wage involves a negative relationship between

nominal wage changes and unemployment rate known as Philip’s

curve (1958). The simplest interpretation of this curve is to consider

that unemployment exerts downward pressure on nominal wage

when there are few unemployed; workers are in a position to obtain

higher unemployment because competition among employers to

attract workers is intensified by low unemployment.

Following the oil doom in the economy in the 1980, the

problem of unemployment started to escalate with the introduction

of monetary exchange rates and the inability of most industries to

import the raw materials required to improve their output level.

In the depression phase demand for goods and services is the

minimum, construction of all types of capital goods is at stand still;

there is massive unemployment and the economic growth and

development of the country suffer. Also the generous unemployment

benefit may hinder individuals to look for a job in order to gain

access to unemployment benefits. Rapid population growth

9
accompanied by un-precedented inflow of rural migrants generate

massive urban problem of rural unemployment. The main aim of

government is to attain full employment level but it failed to

materialize.

In Lewis model rural to urban migration is one of the

demographic characteristic of developing countries and the

mechanism theory which revealed that labour transfers physically

from agriculture to city based industrial employment thus enhancing

the expansion of the modern sector and integration of the two

sectors of the dual economy; inward migration to urban area will

continue as long as the expected value of earnings of the urban wage

exceeds the rural wages. Many people especially those living in rural

areas were frustrated by lack of job opportunities, also they include

those without work and who have job but want to work for longer

hour. A very little attention has been paid to self employment scheme

in Nigeria not until in the 1980’s during the period of great recession;

they adopted the structural adjustment programme (SAP).

To provide a permanent solution to this problem arouse a

universal conviction that unemployment is inevitable and it created

pessimism that government has no power to bring unemployment

10
trend to a halt; it is not only a severe problem but also has a

disquieting effect on the economic, political and society as a whole.

According to Damachi (2001) the task of solving

unemployment problem is anchored on better utilization of

manpower through policies that promote economic growth. The

manpower board and national directorate of employment

established by the government have not reduced unemployment.

1.3 OBJECTIVE OF THE STUDY

The objectives of this study are as follows:

i. To determine the relationship between unemployment and

economic growth in Nigeria.

ii. To determine the short-run impact of unemployment on

output level in the Nigerian economy.

1.4 STATEMENT OF THE HYPOTHESIS

i. HO: Unemployment has no significant impact on economic

growth in Nigeria.

11
ii. HI: Unemployment has a significant impact on economic

growth in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

Unemployment causes misery, social unrest and hopelessness

for the unemployed. In Nigeria, the existence of high unemployment

is a source of concern to policy makers as well as the general

citizenry, because employment provisions can be used to check the

performance of the economy.

If unemployment is left unchecked, it will go along way

hindering any economic development plans of the country. It is on

this note that unemployment in Nigeria with its resulted effect has

been treated in this study. This work will be of valuable help to policy

makers.

The policy makers use different strategies to prevent

unemployment in Nigeria, they include changing the pattern of

production in order to create employment through entrepreneur

innovation known as Youth Enterprise With Innovation (YOUWIN)

programmes; emphasis should be placed on the production of

essential goods which use the labour intensive techniques.

12
 The study will help each leader to have bold initiative and

quickly tackle the terrible economic crisis by making wise economic

policy and encourage large scale borrowing for public expenditures.

It helps the leaders to realize that rapid full employment

desired by every country can only be possible if it was combined

with wage and price controls, so as to recognize the nation’s social,

political, cultural and educational life in commensuration with the

national socialist principles. Through this findings and subsequent

recommendations of this study, unemployment will be eradicated. It

will provide an insight into the relevant literature and help to lay

bare the causes and effects of unemployment in Nigeria.

It is the opinion of the researcher that the study will be of

immense benefit to fellow student researcher because it will serve as

a spring board especially for those who will want to research further

on the subject matter in future.

It therefore shall be of usefulness to subsequent researchers as

a reference material.

13
1.6 SCOPE AND LIMITATIONS OF THE STUDY

This research work is restricted to Nigerian economy only; the

focus is on the growth of the Nigerian economy and unemployment.

The period covered by the research is 31 years from (1980-

2010).

There are some limitations of this work; mostly the secondary

data are used in the study because of the difficulties encountered in

the gathering of the primary data given the nature of the study which

is the aggregate level of the economy.

The absence of information caused a lot of hindrance; some

relevant variables may not be included in the research model due to

lack of reliable data on them. This study cannot be said to have

exhausted all the relevant details on the nature of the relationship

between unemployment and economic growth as a result of the

above reasons. This work has a number of challenges which include

inadequate finance and shortage in the availability of relevant

materials.

14
 CHAPTER TWO
LITERATURE REVIEW

It is quite possible that some instances that affect

unemployment also affect economic growth and the level of output in
Nigeria. In the labour market the unemployment rate can be defined
as the number of people actively looking for job divided by the
labour force. Changes in unemployment depend mostly on the
inflows made up of the unemployed persons who are looking for job,
of the employed who lose their job and are looking for a new one and
of persons who have stopped looking for employment. (Levine,
1959).
Unemployment rate increased in Nigeria to 23.90% in 2011; it
points to various factors that influence the level of structural
unemployment which involve difference in time and place; increase
in GDP will reduce the unemployment rate both in the short and
long-run. Nigeria is a nation blessed with various natural resources
both human and material, but due to gross mis-management,
excessive spending, adverse policies of various government in
Nigeria, these resources have not been optimally utilized and
adequately channeled to profitable investments to bring about
maximum economic benefits, because of this, Nigeria has been
bedeviled with problems of poverty and unemployment (Lipsey,
1963).
A literature review shows that unemployment has been
explained mainly in terms of stimulating continuous transfer of

15
labour from rural to urban industrial centre (Pierre and Andre,
2004).

2.1 THEORETICAL LITERATURE REVIEW:

This section of the literature review explores the theoretically
base studies carried out by different Scholars with regard to
unemployment and its impact on other macroeconomics indicators.
The theoretical framework seeks to establish the relationship
between unemployment and economic growth. The real aspect of
this study is the economic growth which comes from the
accumulation of knowledge embodied in innovation through the use
of machines to do work previously done by man, this result to the re-
location of labour across firms which means that unemployment
does not last for a short period of time (Jhingan, 1997).
The market search theories imply that an increase in the rate
of job turnover in natural rate of unemployment shows a negative
long run relationship between rate of growth and unemployment.
(Pierre and Andre, 2004).
Nigerian is a middle income mixed economy with emerging
market, expanding financial services, communications and
entertainment sectors. It is ranked 30th in the world in terms of GDP
in 2012; and the 2nd largest nation within Africa, and on the track of
becoming the 20 largest economies in the world by 2020. (Olaloku,
1979).

16
Keynesian Theory: He wrote His major book on the “Theory of
Employment, Interest and Money”. He was able to see how the theory
of employment, interest and money can help to foster economic
growth that is how employment can create wealth and resources
needed for economic growth and development. How interest rate
and money value can determine macroeconomics stability.
According to Him, total spending will generate employment
which is the highest in the measure of the standard of living. Total
spending is determined by consumer spending and business
investment; business investment is in turn determined by the
quantity of money and the desire to hold money. According to him
savings should be channeled towards total spending and if the total
spending fall, there will be unemployment and stagnation. A fall in
the total spending will reduce investment and income causing
savings to decline. Again there is need for easy access to money and
reduced rate of interest in order to solve unemployment problem
(Jhingan, 1997).

Adam Smith Theory: The application of Adam Smith theory to

economic growth and development lies in the approach to various
stages of economic growth, and this is explained by him in his theory
and what he exposed in his famous book called “An enquiry into the
causes of wealth of Nations”, that is an enquiry on what makes a
nation rich or poor, developed or underdeveloped, wealthy, to
prosper, invest, accumulate capital, to be industrialized and to
manufacture essential goods and services. He also talked about

17
capital accumulation and formation as a necessary condition for
economic growth: this can be realized through savings and
investment both in the short and long-run, also through the increase
in aggregate demand and consumption which assist in economic
expansion, distribution of income and profit maximization needed
for economic expansion in output (Jhingan, 1997).

Technological Theory: The human capital is an important factor for

the wealth of a nation due to its influence on the overall production
of the country. Technological progress can provide more efficient
production method through machines and computers but skilled
labour is necessary to manage and develop them as well as improve
the quality and productivity of the existing labour. Therefore the
formation of human capital is of great important if Nigeria want to be
competitive in future. Nigeria is having a problem with her human
capital formation; the latest value of Human Development Index
(HDI) shows that Nigeria is ranked 156 with the value of 0.459
among 187 countries, this value place Nigeria at the bottom meaning
that Nigeria is considered to have low level of human development;
even though human capital is one of the factor that can drive up
development and associated economic growth, it is very important
factor for the development process of a developing country like
Nigeria. The productive capacity of a country is related to the level of
human capital which explain why human capital formation must be
considered of great important in the future (Olaloku, 1979).

18
 Economist referred to the coexistence of the vast wealth in
natural resources and the extreme personal poverty in developing
countries like Nigeria as the “resource curse”, although resource
curse is more understood to mean an abundance of natural resources
which fuelled official corruption resulting into violent competition
for the resources by the citizens of the country. The news oil wealth
followed by a decline in other economic sectors led to the massive
migration to the city and to increase in the widespread of poverty
especially in rural areas. A collapse of basic infrastructure and social
services in the early 1980s accompanied this trend. (Jhingan, 1997).
In 2005, Nigeria had a labour force of 57.2m; in 2003, the
overall unemployment rate was 10.8%, urban unemployment rate of
12.8% exceeded the rural unemployment rate of 7.4% according to
the latest available information from 1999, the labour force
employment by sector was as follows: 70% in agriculture, 20% in
services and 10% in the industry. (Graffikin, 1992).

2.2 EMPIRICAL LITERATURE REVIEW:

Despite the implication of the equilibrium, unemployment can
be a widespread phenomenon in some labour markets. Although the
unemployment rate in the United States has been relatively low in
recent years (5.8% in 2002), it has been much higher in many
European countries; 8.8% in France, 10.4% in Germany and 9.5% in
Italy (Argy, 1994).
Moreover, unemployment spell may last for a very longtime;
18% unemployed persons in the United States have been

19
unemployed for at least 27 weeks. It is difficult to understand the
existence and persistence of unemployment in terms of the typical
model of supply and demand unless:
1. Firms pay wages that are above the equilibrium level and there
is an excess supply of labour.
2. Wages are constant and cannot be driven down to the
equilibrium level (Linbeck, 1999).
Workers are unemployed for many reasons, and policy makers
usually worry more about some types of unemployment that the
other types. For instance many persons have either quit or have been
laid off or they have just entered or re-entered the labour market; it
takes time to learn about the job or locate the available job
opportunities.
Therefore, even a well functioning market economy where the
number of job available equals the number of persons looking for
work, it will exhibit some unemployment as workers search for job,
that is the equilibrium level of unemployment will not be equal to
zero. This type of “frictional” unemployment cannot explain why
nearly 25% of the U.S work-force was unemployed during the period
of great depression in 1933 or why unemployment rate hit 9.7% in
the 1982 recession. Many workers seem to be unemployed not
because they are “in between jobs” but because of a fundamental
imbalance between the supply and demand for labour (Chrystal,
1995).
The combination of high unemployment insurance benefits,
employment protection restrictions and wage rigidity probably

20
account for the high unemployment observed in Europe in the 1980s
and 1990s (Pierre and Andre, 2004).
In all the OECD countries, workers mobility among different
possible states in the labour market, that is (from one job to another,
from a job to unemployment, or from unemployment to non-
participation) is a phenomenon of major dimension; for example in
firms with more than ten employees in the U.S in 1987, for every 100
jobs there were on the average 26 hires, and 29 quits (Burda and
Wypdosz, 1994).
The duration of the transaction period between all possible
states results mainly from imperfection in the functioning of the
labour market for a work.
The search for a job that fit his or her requirements and skills
is a process that often takes a lot of time. When a firm wants to
recruit new workers, it often chose to devote substantial resources
with a corresponding cost in time to the selection of suitable
individuals. This imperfection in the information available in the
labour market entails the simultaneous presence of frictional
unemployment among person and vacant jobs (Graffikin 1992).
From a cross-sectional data for 20 OECD countries, Layard
(1991) found out that a 10% rise in the replacement ratio would
increase the unemployment rate by 1.7%; this was confirmed by
recent studies using rich data for the period of 1983-1993; Scarpetta
(1996) arrived at a figure 1.3%, and the study by Nickel (1997) on 20
OECD countries found out a coefficient of 1.12.

21
 Blanchard and Wolfes (2001) arrived at comparable order of
magnititude; thus a rise in unemployment benefits would tend to
increase unemployment but this increase is a modest one.
More generally, unemployed persons respond differently to
changes in the unemployment benefits base on their future or
present situation in the labour market. Hence, a rise in the benefits
should bring down unemployment among unskilled workers but
since it increases unemployment among skilled workers its effect on
the global unemployment rate is large. Empirical research carried
out on the industrialized countries suggests that benefits have weak
but slight positive effect on the unemployment rate. Studies carried
out in the U.S in the 1990s concluded that arise in the level of
unemployment benefits may increase global output and the welfare
of high school graduates (Graffikin 1992).
Lipsey and Chrystal (1999) looking at the unemployment
problem in the OECD countries wrote that unemployment touches all
the parts of the OECD countries; about 8.5% of the labour force and
another 15m persons have either given up looking for work or un-
willingly accept a part-time job (Pierre and Andre 2004).
The economics statistics reflect a further weakening of the
world economy and a further fall in the standard of living of the
international working class. A report on manufacturing activity,
unemployment, economic growth and personal income in Europe,
China and the U.S point to an overall slowdown in economic growth
and a rise in unemployment and poverty; this coincide with the new
move by the European Union and the Obama’s administration in the

22
U.S.A to reduce social spending, public sector jobs and wages; this
measure result to an increase in the class-war policies that have
fuelled economic melt-down due to excess suffering of millions of
workers. The EUSTAT report that unemployment in the 17 nation
Euro zone hit a record in January of 11.9%. There were 19m
unemployed people in the euro zone, in the whole of E.U there were
26.2m jobless workers. The situation is worse than this since they do
not take into account millions of people who have dropped out of the
labour market. The highest rate was in Greece at 27%, Spain at
26.2%, the rate of jobless workers in Italy rose to 11.7% in January,
marking the country’s worst unemployment level in 1992. Youth
unemployment in E.U is at depression level, across the euro zone it
stood at depression level, across the euro zone it stood at 24.2% in
January. (Alex 2013).
The I.L.O forecast that the number of jobless persons around
the world will rise. There is rampant unemployment across America,
35 cities suffer unemployment above 15%, New York unemployment
rate continued to rise with the majority of U.S metropolitan areas
showing a rise in unemployment rate above 15% (Grey 2013).

2.3 LIMITATIONS OF THE PREVIOUS STUDIES:

The problem of unemployment is a global issue that has drawn
the attention of scholars after the Great Depression in 1930s.
The effect of unemployment on the economic performance of
the economy has been re-examined by different authors, but such
theories have been found inadequate in explaining the peculiar

23
nature of unemployment in the economic growth and development
of a nation. There was no literature that showed the impact of
unemployment in the actualization of economic growth, it is in the
view of this finding that it becomes necessary for the formulation of
policy options that will alleviate unemployment problems and thus
generate sustainable economic growth.

24
 CHAPTER THREE
RESEARCH METHODOLOGY:

This chapter describes the method and procedure of this study.

It involves a survey carried out to determine the impact of
unemployment in Nigeria: it explains the design of the study, the
variables and the controls employed the sources and method of
gathering data, the reliability of instrument constructed and the
procedures used for the analysis of data.
The method employed is the statistical and economics tool in
analyzing and presenting data. The ordinary least square (OLS)
technique of estimation will be used in estimating the model based
on its interesting BLUE (Best linear unbiased Estimator) properties
and its basic assumptions:
a. The error term has constant zero expected value E(Ut) =0
b. The relationship between the regressor and the regressand is
linear.
c. The error term has constant variances for all observation i.e. E
(Ut) = S2.
d. The random variable Ut the statistically independent i.e.
E(UiUj) = for all i = j.
This research method helps in ascertaining the impact of
certain economic variables on a given phenomenon under study. To
ascertain the effect of employment on economic growth and on GDP

25
involves regressing GDP on unemployment which is relevant in
establishing the relationship between unemployment and GDP.

3.1 METHOD OF DATA ANALYSIS:

Due to the invention of programmable computers, economics
researchers have availed themselves to the use of econometrics
research methodology and this research work follows suit. The
dominance of econometrics results gives quantitative measures of
model parameters thus leading empirical content to economic
relationships modeled, (koutsoyians, 1977 and Gujarati 1995).
This study will employ a simple linear regression model and
inference will be drawn based on the results. A linear regression
model is best suited for capturing the nature of relationship that
exists between two variables (dependent and independent). The data
obtained will be fitted in ordinary least square (OLS) regression
method and the method will be used to facilitate model specification.

3.2 MODEL SPECIFICATION:

A model is an abstraction from reality. Econometricians build
model as a way of simplifying the complexities of real life. According
to Nwokama (2001), two types of model exit: Definitional and
Behavioural model. Behavioural model will be applied in this study.
Model specification is based on economics theory and on any
valuable information relating to the phenomenon being studied. This
involves three steps:
a. Determination of dependent and independent variables.

26
 b. Theoretical economic apriori expectation about size and
sizes of parameters of the functions.
c. The determination of the mathematical form of model.
The specification of this model will be used on the following
functional relationship as;
GDP = F (UNEMP)
These variables are considered to be relevant in determining
the effect of unemployment on Gross Domestic Product (GDP) of the
Nigerian Economy.
The econometric model is:
GDP = B0 + B1 UNEMP + Ut.
Where:
GDP: Gross Domestic Product.
UNEMP: Unemployment Rate.
Ut: Error term
B0 + B1 = Regression Parameters.
Gujarati (2003) defines Ut as a random variable that has well
defined probabilistic properties. The stochastic error term also
known as the disturbance term represents all other determinants of
per capita income that are not taken into account explicitly.

3.3.1 METHOD OF EVALUATION:

The technique used is economics test, first order test only.
The economics test under this criterion is apriori expectations
(sign and size) of the parameter estimate of the variable would be
evaluated to check whether they conform to economic theory. B0 is

27
autonomous GDP. B1 (UNEMP) is expected to have a negative sign in
accordance with economic theory that is as the level of
unemployment increase the level of GDP decreases: it is not expected
to have any specific size. According to the economic theory, the error
term (Ut) is used to capture all other variables that might have an
influence on gross domestic product that was not included in the
model.

3.3.2 EVALUATION BASED ON STATISTICAL CRITERIA (FIRST

ORDER TESTS):
These are tests defined by statistical theory and are used at
evaluating reliability of a parameter estimate.
According to Gujarati (2004) a test of significance is a
procedure by which falsity of a null hypothesis is attained.
1. The coefficient of Determination (R2): (Goodness of fit)
will be used to explain the total variation in the
dependent variable (GDP) cause by variations in the
independent variable (UNEMP).
The value of R2 lies between 0 and 1; the closer the R2 to
one, the greater the goodness of fit and the closer the R2
to zero, the worse the goodness of fit.
R2 = 1 – (1-R2) n – 1
N-K

2. The T-test: This is used to test for the statistical

significance of the individual coefficient. A two tailed test

28
 is conducted at 5% level of significance. Then the
computed ratio (t-cal) is compared with the theoretical (t
– tab) with n-k degrees of freedom.
Where n = number of observation
K = total number of parameter estimated
Decision rule: if computed t is higher than the critical
value, reject the null hypothesis and if otherwise accept
it.

3. The F-test: This test measures the overall significance of

the entire regression plane. The test is used to find out
whether the adjoint of the explanatory variables actually
have a significant influence on the dependent variable
Decision rule: if computed t is higher than the critical
value F reject the Ho, if otherwise accept it.

4.3.3 ECONOMETRICS CRITERIA:

1. Test for Autocorrelation: This is to test whether the
errors corresponding to different observations are
correlated or not. Essentially this test is to ensure that
the assumption of the ordinary least square
(Homoscedasticity) is not violated. The test statistics to
be adopted here is the Durbin Watson Statistics.
2. Normality Test: This test will be carried out to test
whether the error term follows the normal distribution.

29
 The normality test to be adopted here is the Jarque Bera
(JB) statistics which follows the Chi-Square distribution.
3. Test for Heteroscedasticity: This test will be conducted
to ascertain whether the error term Ut in the regression
model has a common or constant variance. The White’s
Heteroscedasticity test will be adopted.

30
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 PRESENTATION OF DATA

YEAR GDP UNEMP

(in Naira) (in Percentage)

1980 49,632.3 6.4

1981 47,619.66 5.2
1982 49,069.28 4.3
1983 53,107.38 6.4
1984 59,622.53 6.2
1985 67,908.55 6.1
1986 69,146.99 5.3
1987 105,222.84 7
1988 139,085.30 5.1
1989 216,797.54 4.5
1990 267,549.99 3.5
1991 312,139.74 3.1
1992 532,613.83 3.5
1993 683,869.79 3.4
1994 899,863.22 3.2
1995 1,933,211.55 1.9
1996 2,702,719.13 2.8
1997 2,801,972.58 3.4
1998 2,708,430.86 3.5
1999 3,194,014.97 17.5
2000 4,582,127.29 18.1
2001 4,725,086.00 13.7
2002 6,912,381.25 12.2
2003 8,487,031.57 14.8
31
2004 11,411,066.91 11.8
2005 14,572,239.12 11.9
2006 18,564,594.73 12.3
2007 20,657,317.67 12.7
2008 24,296,329.29 14.9
2009 24,794,238.66 19.7
2010 29,205,782.96 21.1

Source: CBN Statistical Bulletin, Vol. 21, December, 2010.

DMO & NBS Statistics of various years.

4.2 PRESENTATION OF RESULT

The estimates from the regression carried out are presented

and analyzed in this chapter. As stated in the previous chapter, the
modeling procedure employed in the work is the ordinary least
square (OLS).
Using:
Y= B0 + B1X

GDP = F (UNEMP)

GDP = B0 + B1 UNEMP + Ut.

The result of the regression with one regressor is presented in the

table below.

Prob > F = 0.0000

R-squared = 0.4681

Adj R-squared = 0.4497

Root MSE = 1.6832

32
Variable Coefficient Std. Err. T- P> [95% Conf. Interval]

Statistics

Constant 11.60271 0.550495 21.08 0.000 10.47682 12.7286

UNEMP 0.2713566 0.0537163 5.05 0.000 0.1614944 0.3812187

4.3 INTERPRETATION OF THE REGRESSION RESULT

4.3.1 ANALYSIS OF REGRESSION COEFFICIENTS:

From the result above, if all the independent variables are equal to

Zero, the intercept for the GDP becomes 11.60271.

Unemployment (UNEMP): A unit increase in unemployment

increases the Gross Domestic Product by 0.2713566 units. This

shows a positive relationship between unemployment and the gross

domestic product.

4.3.2 STATISTICAL CRITERIA

This test includes:

1 Goodness of Fit Test (R2): From the result obtained in the

regression, R2 is 0.4681 showing a goodness of fit of 46.81%,

33
 on the grounds that the explanatory variable explains 46.81%

of the explained or dependent variable.

2 Student’s T-test: In order to test if the independent variables

are statistically significant, we use the n-k degree of freedom at
0.05 level of significant. At 0.05 level of significance, the critical
value is 2.045. The decision rule is to reject the null hypothesis
(H0) if t cal> 2.045 and accept it if otherwise.

Variables T-Statistic 5% critical value Decision

Constant 21.08 ±2.045 Significant
UNEMP 5.05 ±2.045 Significant
From the result, the constant and unemployment are seen to have

significant impacts on the gross domestic product.

3 The F-Test: This test is conducted to see if the regression

model is well specified. The decision rule is to reject H0 that the

model is well specified in forecasting and policy analysis if F

cal> F 0.05

F cal (1, 29) = 25.52

F tab = 4.18

34
Hence f cal > F tab, we reject H0 and accept H1 concluding that the

model is well specified and considered as being good and adequate

for forecasting and policy analysis.

4.3.3 ECONOMETRICS CRITERIA

This test is to verify whether the assumptions of OLS stated in the

previous chapter are violated. The test is presented below:

1. TEST FOR AUTOCORRELATION

To test for autocorrelation in our model, we will make use of

the most popular and routinely used criteria the Durbin-

Watson test.

H0: No serial autocorrelation

Table 5

NULL HYPOTHESIS DECISION IF

No Positive Reject 0 < d < dl

Autocorrelation

No Positive No Decision dl ≤ d ≤ du

Autocorrelation

35
No Negative Reject 4- dl < d ≤ 4

Autocorrelation

No Negative No Decision 4-dl ≤ d ≤ 4-dl

Autocorrelation

No Autocorrelation, Do Not Reject du < d < 4-du

positive or negative

Where;

d = Durbin Watson

dl = Lower limit Durbin Watson

du = Upper limit Durbin Watson

n = 31

K = 1 (excluding the constant).

At 5% level of significance

d = 0.2702114

dl = 1.363

du = 1.496

36
 And since 0 < d < dl (that is 0 < 0.2702114 < 1.363), we

conclude that it falls within the rejection range. So we reject and

conclude that there is positive serial correlation in the residuals.

2. NORMALITY TEST

This test is carried out to check whether the error term follows a

normal distribution. The normality test adopted the Jarque-Bera (JB)

Test of Normality. The test is an asymptotic and it is based on the

OLS residual. The test computes the skewness and kurtosis a

measure of the OLS residuals and follows the chi-square distribution.

Hypothesis

H0: σ =0 (The error term follow a normal distribution)

Against

H1:σ=0 (The error term does not follow a normal distribution)

At α=5% with 2 degree of freedom.

Decision Rule: Reject H0 if JB* > JBtab at 2df and accept H0 if

otherwise.

From the result of the normality test

JB*= 8.13, while Chi square table JB tab=5.99147

37
Therefore JB* > JB tab at 5% level of significance we reject Ho and

conclude that the error term does not follow a normal distribution.

3. HETEROSCEDASTICITY

Heteroscedasticity Test: we shall employ the White’s

heteroscedasticity test. See Gujarati (2004). This test is basically on

the variance of the error term. The test helps to ascertain whether

the variance of the error term is constant.

H₀: Homoscedasticity (i.e. there is no heteroscedasticity)

H₁: Heteroscedasticity at 2 degrees of freedom.

DECISION RULE

If x² - calculated > x² - tabulated, reject the null hypothesis

X2tab = 6.69

X2stat = 5.99147

Conclusion

Since X2stat < X2tab that is 5.99147 > 6.69 we conclude that the

variance of the error term is constant.

38
4.4 EVALUATION OF THE HYPOTHESIS

The hypothesis has earlier been stated as:

H0: Unemployment has no significant impact on the gross domestic

product

H1: Unemployment has a significant impact on the gross domestic

product.

Going strictly by the result of the tables presented above,

unemployment was revealed to have a significant impact on the

gross domestic product (which is a measure of economic growth),

and therefore we reject the null hypothesis and conclude that

unemployment has a significant impact on the economic growth in

Nigeria.

39
 CHAPTER FIVE:
SUMMARY OF FINDINGS, RECOMMENDATION,
AND CONCLUSION:

5.1 SUMMARY:
In investigating the relationship between unemployment and
GDP, this study attempts to evaluate the short-run impact of
unemployment on the economics performance of the Nigerian
economy. From the result unemployment has a positive relationship
with GDP and its apriori sign does not conform to the economic
theory. However, the result from the T-test analysis shows that
unemployment has a significant impact on the GDP. The coefficient of
determination (R2) amounted to 0.4681 which shows that the
independent variable explained 46.81% of the dependent variable;
the result from the F-test shows that the overall model is significant.
The findings showed that the incidence of unemployment in
Nigeria have been increasing as depicted by the available statistics; it
revealed that unemployment are caused by low economic growth,
population growth, poor governance, macroeconomic shock and
policy failure, corruption, debt burden, poor enabling environment,
neglect of agricultural sector among other. It was noted that
unemployment constitute impediment to sustainable economic
growth and development and in material respect produce political,
economic, social health and psychological effect on the citizens and
the economy in general. Therefore, the need to stimulate economic

40
growth in Nigeria with the utmost commitment cannot be over
emphasized; it can be possible through the diversification of the
economy through the dismantling of the central federalism that
encourages total and absolute dependence on oil.
Nigerian government should as a matter of urgency imbibe the
spirit of true federalism by institutionalizing resource ownership for
the country’s resource management and reducing the inordinate
urge for central power control that induces much political violence.
By so doing, regional development, high standard of living and
economic diversification will be achieved; this will greatly improve
the growth process of the economy and generate employment
opportunities. Human capital variable are the key variable in
unemployment reduction in Nigeria, this implies that more attention
should be shifted to human capital development in order to
accelerate economic growth in Nigeria. Given the high level of
unemployment in Nigeria, the development of entrepreneurial skills
and initiative should be of paramount important especially the
higher education sector in order to facilitate the employability of
graduates. In the view of this, to attack unemployment then, there is
the need to restructure the educational system in respect of
manpower production for the needs of the economy.
Vocational skills should be given high priority as it is capable of
generating self employment; the technological institutions in the
country should be properly funded and equipped to ensure
efficiency. This would motivate the youth to opt for disciplines that
would earn them job independence afterwards.

41
5.2 RECOMMENDATION:
5.2.1 POLICY RECOMMENDATION
The fundamental issues to be addressed in order to reduce and
solve unemployment problem in Nigeria lies basically in tackling the
causes of unemployment through policy initiative. This includes:

1. A stable macroeconomics policy formulation and honest

implementation by government is essential for effective
unemployment reduction.
2. The pursuance of rapid broad-based economic growth that
involves the poor and graduates employment will have a
tremendous effect on the reduction of both poverty and
unemployment.
3. The agricultural sector should revitalize to provide
employment opportunities.
4. Emphasis should be laid on skill acquisition in the educational
system so as to produce graduates that are providers of
employment than seekers of employment.
5. An enabling environment should be created for private sector
investment to increase as this will go a long way to reduce
unemployment instead of leaving the unemployed at the mercy
of the public sector which does not provide enough
employment opportunities.

42
 6. The fight against corruption should be intensified as this would
reduce mismanagement of resources that would have been
used for effective unemployment reduction.
7. The standard of living of the public should be improved upon
by providing the basic infrastructures most especially in the
rural area where the majority of the poor is residing. This will
also reduce migration to urban centre that resulted to rapid in
the urban unemployment.
8. There is need to have a population policy which will limit
population growth to the level that is compatible with the
expansion and employment generation capacity of the
economy.
9. Credit facilities should be made available for small and
medium scale enterprise to enable job seekers who wish to
start off their own business to be able to do so
10. Unemployment reduction programmes should have
sustainability mechanism as this would enable for enable for
effective checkmating of unemployment rate. There should be
participatory approach in programme planning,
implementation and evaluation of unemployment reduction
programmes.

5.2.2 RECOMMENDATION FOR FUTHER STUDIES

In the course of this research work, so many observations were
made. These observations show that if appropriate measures are not
taken immediately to arrest the unemployment problem; the target

43
year of 2020 cannot be achieved. The researcher thinks that there is
a natural relationship between changes in unemployment and
changes in output. However, the exact form it takes is a complicated
problem that required going beyond the simple regression analysis;
there is need to determine effect of variables such as poverty on the
GDP other than the unemployment problem.

5.3 CONCLUSION:
The findings of this study shows that problem of unemployment in
Nigeria requires a pragmatic approach to minimize it. Increasing the
employment rate is not the only way out of this trap but making sure
that most vulnerable group of the economy are taken care of, which
would then enhance economic growth and development.
The consequences of a growing unemployment phenomenon are
such implications are glaring in the economy of Nigeria where many
negative developments are traceable to the non-availability of jobs
for the teaming population of energetic youths. While the
government takes the leading role in the task of employment
generation by providing the necessary enabling environment for
economic activities; it is necessary to note that the battle against
unemployment problem in Nigeria is like a war that too important to
be left for the generals alone, it cannot be left for the sole effort of the
government, all the stakeholders must therefore work together to
overcome the hurdles of unemployment.

44
 BIBLIOGRAPHY

BOOKS:

Akinnifes (1986): Problems of Measuring Unemployment and Economic

Development in Nigeria; Analysis and Policy Implications, CBN
Economic and Financial Review.

Alexander (2013): Global Research on Unemployment. April 26, 2013.

Argy (1994): International Macroeconomics Theory and Policy; London:

Rout Hedge publisher.

Awoke .M. (2001): Econometrics Theory and Application; Abakaliki, Ebony

State, Nigeria: WillyRose and Appleseed Publishing.

Babalola (2001): “Restructuring the Educational System as a Long-Term

Solution to the Unemployment Problem in Nigeria”, CBN Bullion.

Beggs (2000): Attacking Unemployment Hurdles in the Fragile Economies

Of the Sub-Sahara Africa. The Experience of Nigeria, Wuhan

University, China.

Beggs. D; Fisher S. and Dornbush R. (1981): Economics 2nd Edition, MC

Graw Hill Book.

Blanchard and Wolfes (2001): Macroeconomics Issues. 2nd Edition; MC

Graw Hill Book. 2001.

45
Burda and Wyplosz (1994): Studies and Surveys Carried out on labour Force
by National Manpower Board.
Chrystal (1995): An Introduction to International economics. 8th Edition.
Oxford London: Oxford University Press.
Damachi, N.A. (2001): Evaluation of Past Policy Measures for Solving
Unemployment Problems in Nigeria. CBN Bullion.
Dornbush (1987): Economics Theory; 2nd Edition. MC Graw Hill Book.
Englama. A. (2001); Unemployment: “Concept and Issues, in CBN Bullion;
October/ December.
Fisher (1995): An Introduction to Principles of Economics. 2nd Edition. MC
Graw Hill Book.
Grey (2013): Global Research on Unemployment. March 02, 2013.
Graffikin (1992): The New Unemployment Joblessness and Poverty
Reduction. London: Zed Books.
Gujarati. N. and Porter. C. (2004): Basic Econometrics; International Edition,
5th Edition.
Jhingan (1997): The economics of Development and Planning. Virinda
Publication 12th Edition, 2013 .
Jhingan (1997): Advanced Economic Theory. 12th Edition, Delhi India:
Vrinda Publication Ltd.
Jimaza (2001): Simplified Principles of Economics. Enidium Virinda
Publication Ltd.
Layard (1991): Economics Studies; 2nd Edition, MC Graw Hill Book.

46
 Levacic .R. and Rebmann A. (1982): Macroeconomic: An Introduction to
Keynesian; Neo. Classical Controversies. 2nd Edition; London:
Macmillan Educational Ltd.

Lipsey R.G. and Chrystal K.A. (1995): An Introduction to Positive

Economic, 8th Edition, Oxford London: Oxford University Press.

Lipsey R.G. and Chrystal K.A. (1999): Principles of Economics, 9th

Edition; Oxford London: Oxford University Press, Oxford.

Linbeck (1999): Unemployment Structure, Institution of International

Economics Studies; Stockholm University, Semmar Paper ; October.

Nickel (1997): Unemployment Concept and Issues; in CBN Bullion.

Olaloku (1979): The Structure of Nigerian Economy: MC Press Ltd. And

University of Lagos Press Lagos.

Ojameruayee (2001): A First Course in Econometrics; Benin City:

H.Hennas Universal Services.

Pierre and Andre (2004): International Labour Economics, London: M.C

Educational Limited.

Rebmann (1999): An Introduction to Positive Economics, 8th Edition;

Oxford University Press.

Scarpetta (1996): Evaluation of Past Policy Measures, for Solving

Unemployment, in CBN Bulletin.

Turnham D. (1993); Employment and Development: New Review of

Evidence, Development Centre Studies, Paris Organization of Economic
Co-operation and Development.

47
 JOURNALS:

International Labour Organization (I.L.O.), (1985): World Labour Report,

Geneva: I.L.O Office.

Internet (Google 2011); www.goggle.com: The Definition of

Unemployment, by National Bureau of Statistics (NBS).

National Planning Commission, (2006): Economic Performance Review,

Abuja: April/July 2006.

Sample Survey: Of Federal Office of Statistics (FOS); CBN Statistical

Bulletin, Vol. 21, December, 2010. DMO & NBS Statistics of various
years.

48
 APPENDIX

___ ____ ____ ____ ____ (R)

11.0 Copyright 1984-2009
Statistics/Data Analysis StataCorp
4905 Lakeway Drive
College Station, Texas 77845 USA
800-STATA-PC
http://www.stata.com
979-696-4600 stata@stata.com
979-696-4601 (fax)

Single-user Stata license expires 31 Dec 9999:

Serial number: 71606281563

DEPT. OF ECONOMICS, CARITAS UNIVERSITY

Notes:
1. (/m# option or -set memory-) 10.00 MB allocated to data

. use "C:\data\maryjane.dta", clear

. reg lgdp unemp

Source | SS df MS Number of obs =

31
-------------+------------------------------ F( 1, 29) =
25.52
Model | 72.3024051 1 72.3024051 Prob > F =
0.0000
Residual | 82.1641095 29 2.83324515 R-squared =
0.4681
-------------+------------------------------ Adj R-squared =
0.4497
Total | 154.466515 30 5.14888382 Root MSE =
1.6832

----------------------------------------------------------------------------
--
lgdp | Coef. Std. Err. t P>|t| [95% Conf.
Interval]
-------------+--------------------------------------------------------------
--
unemp | .2713566 .0537163 5.05 0.000 .1614944
.3812187
_cons | 11.60271 .550495 21.08 0.000 10.47682
12.7286
----------------------------------------------------------------------------
--

. tset year,yearly
time variable: year, 1980 to 2010
delta: 1 year

49
. estat dwatson

Durbin-Watson d-statistic (2, 31) = .2702114

. estat imtest,white

White's test for Ho: homoskedasticity

against Ha: unrestricted heteroskedasticity

chi2 (2) = 6.69

Prob > chi2 = 0.0353

Cameron & Trivedi's decomposition of IM-test

---------------------------------------------------
Source | chi2 df p
---------------------+-----------------------------
Heteroskedasticity | 6.69 2 0.0353
Skewness | 0.20 1 0.6588
Kurtosis | 4.80 1 0.0285
---------------------+-----------------------------
Total | 11.68 4 0.0199
---------------------------------------------------

. predict residual,res

. sktest residual
Skewness/Kurtosis tests for Normality
------- joint -----
-
Variable | Obs Pr(Skewness) Pr(Kurtosis) adj chi2(2)
Prob>chi2
-------------+--------------------------------------------------------------
-
residual | 31 0.7729 0.0022 8.13 0.0171
.

50