The Effect Of Economic Growth
Nigeria is an economy characterized by several policies which are aimed at correcting adverse conditions limiting its growth and possibly its survival as a nation. Some of these policies however lack good formation, implementation and monitoring. This is evident even in current policies of power transformation, foreign direct investment encouragement and other past plans and programmes of the government.
Simple economics explains that there are certain macroeconomic objectives that every economy should seek to achieve. These include full employment, price stability, balance of payment equilibrium and economic growth. Economies of the world however rank these objectives prior to themselves, depending on the level of development of such economy.
For example, it is evident that the Central Bank of Nigeria had in time past invested its policy measures on stabilizing the price level. This to a large extent is described has one of the means by which growth can be increased and unemployment reduced. In other words, the goal of increasing the level of employment among other macroeconomic objectives is an important one in many developing nations where unemployment and underutilization of resources has led to rising rate of poverty.
Given that there are several visions and continuous establishment of agencies and parastatals within the Nigerian economy more than other nations of the world, the achievement of impressive growth and acceptable employment level remains in prospect. High rate of unemployment, unimpressive growth rates and poverty among other miseries of the populace, are the order of the day.
Facts gotten from publications for the Nigerian economy as analyzed by Adebayo and Ogunrinola, 2006 and the National Bureau of Statistics 2010(NBS), shows a high rate of unemployment and underemployment, for instance, the rate of unemployment was 12% in March 2005; it rose to 19.7% in March 2009 while the rate of underemployment was around 19% in 1998.
This rate of unemployment can be considered high based on the overall performance of the Nigerian economy as at that time. As a matter of emphasis, among the youths in the 15-24 age brackets, the rate of unemployment was observed to be over 40% according to the 2010 edition of the Labour Force Sample Survey of the National Bureau of Statistics.#p#分页标题#e#
It is important to note that the study of employment and economic growth cannot be separated from their respective determinants. As explained in 2001 by Fofana N. F. in his work, "Employment and Economic Growth in the Cote d'Ivoire: An Analysis of Structural Determinants", the issue of real output and employment growth in developing nations is a requirement for poverty reduction and a more equitable income distribution. This means that other economic indices are tied to the basics of employment and factors affecting it.
In the light of the above therefore, Adebayo and Ogunrinola, 2006; Oladeji, 1994; Omotor and Gbosi 2006 explained that many studies on Nigeria's employment situation have been devoted to unemployment and its determinants and/or its impacts on economic growth. These studies mostly conclude on the nature of employment and may also suggest reasons and solutions to the curse of unemployment.
Oni, 2006; Patterson et al 2006 also opined that "Though from a quick look at the Nigerian data on employment level and real GDP, it appears that the recent economic growth trends and patterns have been insufficient to make any appreciable impact on employment generation and poverty reduction, but this has not been sufficiently investigated empirically in the literature".
It is thus needful to find out categorically the causal effect between employment and economic growth based on available data collected by various data gathering establishments.
STATEMENT OF RESEARCH PROBLEM 研究问题陈述
The major problem identified in the Nigerian context is that of these increases in these economic growth indicators, unemployment has really been a major cause for concern. Policies and policy target to curb unemployment have really not been working and various labor market laws and policy have not really worked.
In macroeconomics analysis growth has been described to have positive relationship with the level of employment. According to various economic principles this has been proven. Of such principle is the okun's law which states that has the economy grows by say 3%, the rate of unemployment is to reduce by 1% and vice versa. But the reverse has been the case in the Nigerian context. The economy in recent times has been experiencing growth but the level of unemployment has been increasing both among the youth and among working class adults.
The various theoretical literatures read shows that the nexus between the employment rate and the level of growth as stated in the paragraph above is a positive one, contradicting the Okun's law. This stated fact is shown by the recent figures on both employment and economic growth. The rates of economic growth for 2010 to December, 2012 are as follows: 7.76% to 6.99% respectively and those of unemployment from 2010 to 2012 are as follows: 19.7% to 23.9% respectively (Source: www.tradingeconomics.com/ Nigeria Bureau of Statistics).#p#分页标题#e#
These growth figures shown above tell us about the break from the norm that the Nigerian economy is passing through. But in a normal economy the increased level of growth is supposed to boost the level of income, level of investment, level of consumption and savings and eventually the level of employment. But the reverse has been the case in the Nigerian context: the employment generation rate keeps falling, the unemployment rate keeps rising and the growth rate has to some extent increased consistently with minimal fluctuations.
The problem that this research wishes to deal with has to do in details with the nature and dynamics of this growth; what has influenced it overtime? Why has it that this increased growth has had no significant effect on the rate of employment generation? And finally how these increases in growth can be exploited to get maximum growth in employment generation rate.
RESEARCH QUESTION 研究问题
Thus, given the above problems, the research questions are;
What are the major relationships between employment generation and economic growth?
What are the effects of economic growth rates on employment generation and how wide is the gap between the two economic objectives?
How is this gap going to be reduced?
Which is the best macroeconomic model and strategy to adopt to curb unemployment Nigeria?
RESEARCH OBJECTIVES 研究目标
The major objective of the study is to empirically investigate whether employment increases or unemployment decreases with increasing economic growth rate.
The specific objectives of the study are:
To model the rate of economic growth in Nigeria with respect to its effect on employment rates and policy.
To examine the role of various policy regimes in busting the economic growth and also policies to increase the rate employment in the economy.
To review the various types of employment and the employment strategies with respect to various job types and how it has affected growth.
To show various trends in the data of both economic growth and unemployment, look at the various gap analysis and then model ways of reducing the gaps identified between economic growth and employment.
To provide policy recommendation(s)
RESEARCH HYPOTHESES 研究假设
The research aims at testing the following hypotheses:
Ho: Î±i=0 There is no relationship between economic growth and employment rates.#p#分页标题#e#
Ha: Î±i‰ 0 There is a relationship between economic growth and employment rates.
Ho : Î±i=0 There is no significant effect of economic growth on employment.
Ha : Î±i‰ 0 There is significant effect of economic growth on employment.
JUSTIFICATION OF THE STUDY 研究的正当性
Many occurrences about the fluctuations between the economic growth rate and the increasing level of unemployment as influenced researchers in recent times to study the great influence of the growth rate on the level of employment in the Nigeria economy. Due to the fact that the Nigerian economy is becoming increasingly sophisticated hence the need to study the relationships between this two concepts since it has been stated in various literature that both economic indicator has very high influence on other economic variables like the exchange rates stability, price stability etc. Various studies from the review of theoretical literature, has shown that the rate of unemployment is growing likewise the rate of growth in the economy. This prompted the study to further advance the study on the impact of the latter on the former and also to know more about the impending issues which have also been mentioned in other literatures.
ORGANIZATION OF THE CHAPTERS 各章组织
This project is divided into five chapters. The first chapter gives a general introduction of the study, the statement of the research problem, objective(s) of the study, research hypothesis, and the justification of the study. Chapter two is the review of related concepts; theoretical and empirical literature, while chapter three presents the research methodology. Chapter four is presentation of data, interpretation and analysis of result. Finally, chapter five presents the summary, conclusion and recommendation. Other miscellaneous details are presented in the appendix.
SCOPE OF THE STUDY 研究范围
This research work describes why, how and if there is a major impact of economic growth on the rate of unemployment in the Nigerian economy. This also will examine the role of government in curbing unemployment through various policies from 1990 till date.
CONCEPTUAL LITERATURE 文献概念
ECONOMIC GROWTH 经济增长
Economic growth is measured in terms of growth in real GDP. The Gross Domestic Product (GDP) is measured in terms of the amount of final goods and services produced in a particular country in an accounting period excluding income from abroad. This growth rate is always measured in real terms which are described as inflation adjusted terms.
According to Investopedia, economic growth is described as an increase in the capacity of capacity of an economy to produce goods and services, compared from one period of time to another which can either be measured in nominal or real terms.
In Nigeria in recent years the GDP as to some extent grown from 7.68% in 2012 and but in December, 2012 the GDP level as fell a little to 6.99%.
The economic growth can either be long term or short term growth. The growth in GDP is divided into growth in both potential output and actual output which will be defined below;
POTENTIAL OUTPUT 可能产量
It has to with percentage increase in the capacity of the economy to produce which is always measured annually.
In the online business dictionary it is defined as the total Gross domestic product that could have been produced by an economy if all its resource were fully employed. Potential output is the estimated growth you foresee based on parameters like sales, promotion, and market.
Also Wikipedia defined it as the highest output of real gross domestic product output that can be sustained over a long period of time.
ACTUAL OUTPUT 实际输出
This has to with the actual level of output produced in an economy in particular time, also usually measured annually.
Online business dictionary also defined it as the amount of commodities that a firm actually produces, as opposed to the amount that it could produce if it were to run at full theoretical capacity.
UNEMPLOYMENT AND EMPLOYMENT 失业与就业
Unemployment has to do with the total number of able men and women who continue the labour force present in an economy. It is defined in business dictionary as the total number of able bodied men and women of the working age seeking paid work. Unemployment statistics vary according to how the employment is defined and who is deemed fit to be part of the workforce.
According to Investopedia, unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of an economy. The total number of unemployed person present in an economy is described as the unemployment rate which is measured in percentage. Presently in the Nigerian economy the unemployment rate is very high coupled with the fact that the economy is witnessing growth. The unemployment rate as at December, 2011 was 23.9%. There are the determinants of unemployment which are based on region been under consideration.
DETERMINANTS OF EMPLOYMENT 决定就业
The determinants of employment and also unemployment vary from countries to country. Nigeria about which we carrying out this research shows that there are various kinds of employment; which ranges from the formal employment and the informal employment, the self-employed to the civil servants i.e. the workers in government parastatals. The determinant of unemployment in Western Europe was given by a Professor of Economics in London school of Economics.#p#分页标题#e#
The following are the major determinants of employment in Western Europe:
Job matching services:
In most countries including Nigeria there are enterprises who are saddled with the responsibility of reducing the level of non availability of information on adequate jobs. These enterprises are involved in pasting of job adverts on newspapers and magazines and sometimes they do select suitable candidates to send in relation to certain vacancies.
One of the major elements in which jobs are made available is through adequate training of people. But this has been advocated as been the most unsuccessful of them all. People are trained through schools and even there in job training. Training serves as a signal to industries of an individual's qualification for a particular or to fill a particular post or position. Training also increases the potential and skill of the person been trained and it leads to high productivity for the firm.
Statistically proven it has been shown that youth measures to boost employment has been one of the least effective of the measures just because youths are more involved in youth activities like training as well as direct provision of work.
The then government of the United Kingdom gave more attention to its new deal on unemployed young people. The major aspect of the deal is the combination of benefit withdrawal after six months with a guarantee to find for each young person still unemployed at that stage, a job, a training scheme etc.
Subsidies to business enterprises taking on the unemployed people appear relatively helpful to the unemployed workers concerned, but these measures are none the less the most difficult to evaluate. It is always difficult to tell if the business enterprise concerned is a new business or one which would have existed anywhere. Using then chart below we illustrate the number of subsidized employment and participant inflows as a percentage of the labour force, 1994.
TYPES OF UNEMPLOYMENT AND EMPLOYMENT 失业与就业类型
There are various types of unemployment which have been described in various works which have been mentioned in different textbooks and by different economic scholars based on physical and human attitude to work. Employment types are based on different regions of the world:
The type of employment based on particular region is explained briefly below:
The human resources divisions of the recommended types of employment are thus
Regular Full Employees:
This type of employees involves those who are scheduled to work 8 hours per day from Monday to Fridays on a regular basis and expected to work for at least one year.#p#分页标题#e#
Regular Three-Quarter time Employees:
These are employees who are scheduled to work 30 hours per week but less than 40 hours per week, on a regular basis and they are expected to work for at least a year.
Regular Part Time Employees:
This type of employment requires that employees be employed for at least one year but work for 20 hours per week but less than 30 hours per week on a regular basis.
Temporary Full Time Employees:
This type of employment requires that the employees work for at least three months but less than a year for 8 hours per day, Monday to Friday.
The employees are not scheduled to work some particular fixed hour per day or week on a continuing and they are not fixed to work for a specific period say three consecutive months.
Following in the same vain are the types of unemployment prevalent in many economies today. They are:
Demand Deficit Unemployment
This is also referred to as the cyclical unemployment which is more related to recession periods. During recessions as the demand of many individuals in the economy falls, signals a sent to the employers of labour who in turn cut back production to avoid excess accumulation of manufactured but unsold stocks which will then lead to the cut down of the number of individuals employed to produce one unit of a commodity.
According to Richard Pettinger, cyclical unemployment occurs when the economy is producing below capacity. Jodi Beggs described cyclical unemployment as been associated with business cycles occurring in the economy.
This type of unemployment is the simplest of all the types of unemployment. This unemployment is associated with when people are between jobs. When they quit one job and are in search of another. The period between their quitting that job and getting another one is referred to as the frictional or search unemployment.
Jodi Beggs stated that Frictional unemployment occurs because it takes workers some time to move from one job to another.
This type of unemployment has to do with when there are structural changes in the economy. There are two main reasons for these structural changes in the economy; the first is that there might be changes in the pattern of demand in certain industries. There might be decline in some industries while in others there are increases. The second is that there might be technological changes or change in the technique of producing commodities.
The structural unemployment often occurs in various regions of the country.
Jodi Beggs reasoned that this type of unemployment might be due to fact that some labour markets have more labour than there are jobs available, and for some reason wages don't decrease to bring the markets to equilibrium.
According to Richard Pettinger, this type of unemployment occurs when there is a mismatch of skills in the labour market caused due to geographical immobility's, occupational immobility's, technological changes and structural changes in the economy.
Real wage Unemployment:
This occurs when wages are driven above the market clearing level by trade unions who use their monopoly power to do this or when government set national minimum wage too high.
It also referred to as the classical unemployment. This type of unemployment occurs when the wage in the labour market is at disequilibrium. In this situation the wages will be sticky downwards.
This situation occurs when in certain seasons of the year some types of workers are demanded for. It occurs when labour demand fluctuates with seasons.in Preserve Articles stated that its a type of unemployment in which certain industries employment workers for a particular season then they are dispersed at the end of the season.
Then on a final note we distinguish between voluntary unemployment and involuntary unemployment. The voluntary unemployment has to with when individuals do not work or desire to work at going or prevalent or prescribed wage in the economy. The involuntary unemployment has to do with when workers desire to work or laid off work or fired from their present job.
Okun's law 奥肯法则
The Okun's law is a law propounded by a Yale Economist/Historian Arthur Okun. The Okun's law establishes a statistical relationship between economic growth and unemployment. The law states that when an economy (i.e. GNP) is growing at the rate of 3% the unemployment rate is supposed to be decreasing by 1%. But after it was checked will datas in reality it was seen that it didn't really represent real life situation. Then the law was reframed and then the GDP was used, where it now stated that at 2% increase in economic growth the unemployment rate is supposed to decrease by 1%. This assertion was confirmed by Abel and Bernanke (2005) when they tested data and found that the economic growth rate (GDP) was at 2% while the rate of unemployment was decreasing at 1%. Thus, the law establishes a negative relationship between unemployment and economic growth.
According to Bernanke, the chairman of the St. Louis Federal Reserve Bank, Okun's Law is a rule of thumb used to explain the relationship between jobs and growth.
He summarized his idea by saying that the rule of thumb describes the observed relationship between changes in the unemployment rate and the growth rate. He then asserted that to achieve a percentage point fall in the unemployment rate in a particular period, real GDP must grow approximately by 2% faster than the rate of growth of potential GDP.#p#分页标题#e#
The law can be stated mathematically below:
Using two versions, the first version is when output is below full employment (that is, the economy is operating inside the production possibility frontier) the unemployment will exceed the natural rate.
THEORETICAL LITERATURE 文献理论
The Endogenous Growth Model 内生增长模型
The endogenous growth model looks at the major factors that affect economic Growth from within. Majorly the endogenous Model considers basically such factor as to affect growth externally. Such factors are investment in human capital, innovation, and knowledge which are significant contributors to economic growth. The model focuses on positive externalities and spillover effects of a knowledge based economy which will lead to economic development. The Robelo's model, Romer's, the AK model, the Lucas model e.t.c are examples of exogenous models. But for this work the exogenous model will be used, which is therefore stated briefly below.
Solow Swan Model of Economic 索洛经济增长模型
The Solow swan model is the model thatl be used for this particular work. The Solow swan model came up with extensions and advancements to the Harrod Domar model by including labor as a factor of production and also said that the ratio between the capital to labor ratio is not fixed. This advancement in their model allows for intensity to be distinguished from technological progress. The Solow Sawn model considers both the supply and the demand side of the economy but they are more concerned about the supply side. It must also be of note that the production function can be used to explain part of the Solow Swan model
The Solow Swan model can be given mathematically below
The solow takes as a whole, the only commodity, in the economy.
K=sY --------------- (1)
Since output is produced with capital and labour, technological possibilities are represented by the production.
Y=F (K, L) --------------- (2)
That shows constant returns to scale.
Inserting equation (2) in (1), we have
K=sF (K, L) --------------- (3)
In equation (3), L represents total employment.
Since population is growing exogenously, the labour force increases at a constant relative rate n. Thus
L (t)=Locnt --------------- (4)
Where is n referred to by Solow as Harrod's natural rate of growth in absence of technological change; and L (t) as the available supply of labour at time (t). The right hand side of equation (4) shows the compound rate of the growth of labour force from period o to period t. Alternatively equation (4) can be regarded as a supply curve of labour. This says that the exponential growing labour force is offered for employment completely inelastically. The labour supply curve is vertical line, which shifts to the right in time as the labour force grows according to (4). Then the real wage adjusts so that all available labour is employed, and thre marginal productivity equation determines the wage rate which will actually rule.
By putting equation (4) into (3). Solow gives this equation
K=sF (K, Locnt) ---------------- (5)
This referred to as determining the time path of capital accumulation
EMPIRICAL LITERATURE 实证文献
There have been many discussions on the topic been researched. Some of the thought and discussions and scholarlic insight into the subject matter will be examined in this section.
Every nation wants to grow and also develop so as to bring about economic independence. There have been various policies recommendations from various writers to combat unemployment in various aspects and facet of the economy.
The stage of growth model development was advocated by an American economic/historian W.W. Rostow (1960). He put forward that it is possible to identify all societies, their economic dimensions, as lying within one of five categories: the traditional society, the preconditions for take-off into self- sustaining growth, the take-off, the drive to maturity and the age of high mass consumption.
He then asserted that one of the principal strategies of development necessary for take-off was the mobilization of domestic and foreign savings only are sufficient for growth. This view assumes that domestic and foreign savings only are sufficient for growth. The theory was supported by Harod Domar model (1939; 1946) which demonstrated that countries with higher savings ratio are expected to grow faster than those with lower rates and that the main obstacle to or constraint on development is the relatively low level of new capital formation in most developing countries.
Based on Adedoyin (2012) deduction, he deduced that the in practice it has been observed that the mechanism of development embodied in the theory of stages of growth do not always work. This is not because savings and investment are not necessary condition for growth but because they are not sufficient condition. Savings and investment will propel growth if and only if such other conditions as integrated commodity and developed financial (money and capital) markets, highly developed infrastructure, well trained and and educated workforce, the motivation to succeed, and pan efficient government bureaucracy e.t.c. are prevalent.#p#分页标题#e#
The proponents of the structural change model instead focused on the mechanism by which under developed countries transform their economies from a heavy emphasis on the traditional subsistence agriculture to a more modern, highly sophisticated, more urbanized and more industrially diverse manufacturing and service economy.
The various upcoming programs have all also contributed to the boosting of employment and also having a multiplier effect on the economy. This was stated in a work by Ogunrinola (1991) who examined the issue of employment and incomes of the urban informal sector of Ibadan. He found out that the urban informal sector of Ibadan has contributed significantly to employment creation, skill development and entrepreneurial development. In the same vain also Onwuioduokit (2006) looked at the major nexus between unemployment and several macroeconomic variables in nigeria and then concluded that that the consistent shift in the employment variables since 200 has made it inadequate to quantify the real state of the country's unemployed.
And in different countries also so many studies have been done using both the comparative and empirically analysis. Some of their thoughts are; in the Euro zone the relationship between unemployment was also examined by Walterskirchen (1999) who made an indepth research into the link between economic growth and the labourt market. His findings were that changes in employment and unemployment rates are governed were affected by economic factors and also demographic influences and labour market policies. His findings established a strong positive correlation between economic growth change in level of employment after he used time series analysis and panel data. Many studies both I Nigeria and beyong have used times series data to explain trends and establish the relationship between the two variables. The research that will be done will also follow suit in the same line of action.
The Data that will be used in this project will be from secondary sources such as the National Bureau of Statistics (NBS), the Central Bank of Nigeria's (CBN) statistical bulletin, National Population Commission (NPC) and newspaper.
This succession describes the method that will used in this research, the method of data collection, the kind of analysis that will be done and it also talks According to Ogunrinola and Shodipe, the model used which was based on Fofana's modeling of the relationship between economic growth and unemployment in Ivory Coast is more appropriate in describing the nexus. The model will be stated below with little modifications:
Two factors only will consider as to be held responsible for the change in employment levels they; the real GDP and Public expenditure.#p#分页标题#e#
E=f(RGDP, PE) ---------------- (1)
RGDP= f(K, L) ---------------- (2)
Where E= Total employment
RGDP= Real Gross Domestic Product
PE= Public Expenditures
L=Labour or the labour force
K= Capital Accumulation
Assuming that a linear relationship among the two independent or explanatory variables, the explicit form of equation (1) becomes
E=Î²o + Î²1RGDP + Î²2PE + Ð„ ---------------- (3)
E=Î²o + Î²1L + Î²2K + Î²3PE + Ð„ ---------------- (4)
Adopting a log-linear specification, taking the natural logarithm of both sides of the equation and assuming linearity among the variables gives:
LogE= Î²o + Î²1LogL + Î²2 LogK + Î²3 LogPE + Ð„
Note that Log A = Î²0
Ð„ here represents the error term which includes all other externality that contributes to the growth in employment.
E=Ø0 + Ø1RGDPGR + Ø2PE + Ð„ ---------------- (3)
This equation represents the real growth rate Of GDP
We can then similarly estimates the non-linear form of equation (1) which now become
e= Î±o + Î±1rgdp + Î±2pe +µ ---------------- (4) and
e= bo + b1rgdpgr + b2pe + e ---------------- (5)
Then when we want to carry out this analysis we will recognize that there is a need to assess the stationary of the data. To avoid spurious regression we do not regress non stationary of one data over another non-stationary data. And this also helps us to reduce the level of bias and inconsistency in our outcome. Then a time series analysis is then carried out and the Chi-square test (x2) will then be used to test the null hypothesis using the statistical package for social sciences (SPSS) or the E views (Economic views). All in all, what was done is econometric in nature.