The Impact of Economic Growth on Employment in Nigeria

[a] Ph.D.， Al-Hikmah University， Ilorin， Nigeria.

*Corresponding author.

Received 1 January 2013； accepted 14 February 2013

Abstract

Nigeria has enjoyed a long period of sustained economic growth since 2001 and yet， there is rampant unemployment in the country. There are various studies that have supported that growth is a pathway to employment. Thus， this paper investigated the impact the economic growth in Nigeria had on employment generation. The Johansen vector- Error correction model was used in the investigation. The findings revealed that， although economic growth had positive relationship with employment， the relationship is not significant. Foreign private investment has negative impact while Public expenditure has positive and significant impact on employment. It is concluded that the growth in Nigeria does not support employment. The paper recommended that， growth in the economy can support employment if the government gear expenditure towards areas like labour intensive Industry that can create more employment.

Key words： Public expenditure； Economic growth； Decent work

INTRODUCTION

Since 2001， Nigeria has enjoyed a long period of sustained expansion of the non-oil economy， with growth occurring across all sectors of the economy and accelerating at about 7%. This growth rate increased to about 8-9% in 2003 despite the financial crisis. This has more than doubled the growth rate in the country prior to 1999. Even in the wake of the global financial crisis in 2009， Nigeria’s growth performance fell only to about 4.5 percent. This， according to Ajakaiye and Fakiyesi （2009） has been attributed to the rapid growth rate in the non-oil export. The development of the non-oil economy was in contrast to that of the oil economy， whose contribution has been declining owing to unrest in the Niger Delta. However， an investigation by the World Bank （2009） has revealed that the pattern of growth in the Nigerian economy has not supported employment generation especially decent employment. On sectorial examination， there has been a little growth in the agricultural sector. As there has been a shift of employment into family agriculture. And the growth of employment in the agriculture sector is consistent with the absence of improvements in agricultural productivity. World Bank （2009） further stressed that the strong agriculture performance are primarily as a result of the rise in the prices of agriculture commodities， owing to（a） the increase in international prices； （b） the increase in demand from the urban middle class； and （c） the impact of restrictive trade policies. Thus， the changes does not allow for employment generation directly. It is however discovered that these change in relative prices in favour of agricultural commodities explained the increase in incomes in family agriculture， and is consistent with the marked decline of extreme rural poverty， supporting decent work in the rural area World bank （2009） also observed that a lot of jobs have been lost in the public sector of the economy and as such this growth in the agricultural sector of the economy could not compensate for the loss of wage jobs in the public sector， parastatals， and government agencies； where there were massive retrenchments， leading to a decline in wage employment. World bank（2009）， therefore， concludes that Nigeria’s growth performance has clearly not responded to the aspirations of its population. Persistent poverty， increasing income inequality and unemployment – further exacerbated by financial and economic crises and climate change – are critical constraints on economic and social progress.

Promoting employment growth is a central challenge for all countries today including the developing economies. With unemployment at historically high levels in many countries today， there has never been a greater need to put employment generation at the centre of economic and social policies. Even among those who are employed， the extent of poverty accentuates the need for a far greater number of productive and decent jobs. The insufficient pace in creating decent work worldwide points to the need for greater international coordination of macro-economic policies， as well as active labour market policies at the national and international level. The aim of this paper， therefore， is to empirically investigate the relationship between economic growth and employment generation in the Nigerian economy. The paper is divided into 4 parts. The first part of the paper investigates the issue of decent employment as it relates to the Nigerian economy， part 2 investigates the labour market in the Nigerian economy， part 3 investigates the relationship between employment and economic growth in the Nigerian Economy while the last part concludes and recommends.

1. DECENT WORK AGENDA

1.1 Global Employment Agenda

The ILO identifies policies that help create and maintain decent work and income — policies that are formulated in a comprehensive Global Employment Agenda worked out by the three ILO constituents - governments， employers and workers.The Agenda’s main aim is to place employment at the heart of economic and social policies. Consistent with the Millennium Development Goals， the Agenda seeks， through the creation of productive employment， to better the lives of people who are either unemployed or whose remuneration from work is inadequate to allow them and their families to escape from poverty. However， in the Nigerian economy， most employment is in the informal sector. A large proportion of these people are under self-employment with very low income （Sodipe Ogunrinola， 2011）. Individuals and firms were motivated to go into informal economy activities for survival purposes following the economic downturn experienced by the country. Nigeria’s woes included its exposure to external shocks， poor management of its resources and a huge debt profile over the years. Structurally， the country shifted from the agricultural sector to the petroleum industry following the oil boom in 1973. This resulted in unemployment， as persons moved from the agricultural sector in search of opportunities that were none existent in the official sector， thereby increasing the number of shadow economy activities. Thus， most of the time， decent works are very hard to come by in the country.

The ILO （2011） has identified four indicators of decent work agenda. These include； employment creation， right at work， social dialogue and social protection. Employment creation remains elusive for the Nigerian economy. Indeed， there are few success stories in this area.The unemployment figure has been growing over the years. The trend of unemployment in Nigeria has shown that its rate is still high as in the 1980s. According to the National Bureau of Statistics， unemployment rate declined in response to the various measures put in place to 5.3 percent in 1981 from the height of 6.4 percent in 1980. It however， increased to 3.4 in 1996 and slightly decreased to 3.2 in 1997 and 1998 but peaked to 6.4percent in 2005. Recent report from CBN （2007）， shows that unemployment in the first quarter of 2006 was 13.6 percent while the corresponding rate in 2007 was 14.6 percent. However， this figure has increased to 19.1 percent and 23.9% in 2010 and 2011 respectively. The erratic movement in the rate of unemployment in the country is not unconnected with the various short-run policies put in place to curb unemployment from time to time. In general， Nigeria like any other countries in the world has realized that， as a matter of fact， apart from education， the second most important form of empowerment that a state can bequeath to its citizen is to assure them of gainful employment， hence， successive governments have incorporated one form of employment policy or the other into their programmes. One sphere in which the region has made progress as regards the Decent Work agenda is that of stipulating minimum wages. This was recently put at N18000 （$120 per month）. This is about $4 per day if the exchange rate per dollar is put at N150. This is slightly above the poverty line of about $1 per day. It should be noted that this is only endorsed and adopted by the Federal government as many state governments have indicated their inability to pay this. The informal market is paying a lot below this as sometimes they pay as low as N5000 （$34 per month）. This is approximately $1 per day. With the definition of ‘poor’ remaining unclear， many workers are likely to be left out of the minimum wage system.

According to World Bank （2009）， the decline of wage employment has been attributed to three developments in the country in recent time：

？ The retrenchment of civil servants and the privatization of many parastatals led to a sharp decline in public service employment， which has long dominated employment in the formal sector and continues to represent the largest share of wage employment.

1.4 Nigerian Labour Market

Labour markets in Nigeria estimated at 70， 126， 085 exhibit same characteristics as those of the rest of Africa（NBS， 2010）. Ncube （2008） identified various segments of the labour market in Africa. These segments are also exhibited in the Nigerian Labour market. Thus， the labour market in Nigeria are segmented into Rural-Urban， private-Public and Formal-informal as observed by Ncube （2008）. According to him， rural labour markets are dominated by agricultural and self-employed workers that are predominantly women. The dominance of agriculture employment thus condemns the majority of workers， women especially， to poor-quality and low-paying jobs. These jobs are characterized with long and irregular working hours， lack of pension and other social benefits， job insecurity and abundant contract and casual labour. Other characteristic of these rural markets is child labour within the agricultural labour sector whose eradication is another challenge for the Nigerian economy as many Sub-Saharan countries （see Ncube， 2008）. According to the ILO （1999）， about 80 million children were employed in Africa in 1999. These children have been deprived of both education and their childhood development. Worse， this tends to be a vicious cycle as these young workers are vulnerable to poverty， which itself perpetuates child labour （ILO， 1999）. The second segment； which is the urban labour market， is largely comprised of the industrial sector. Compared to the rural labour market， the urban labour in the industrial sector comprise on the average better quality jobs. The third segment is the formal segment. The formal market consists of the civil service works. This segment employs the bulk of the wage employment. These are mainly in the Urban centres with part in the rural areas especially those workers employed by the Local Government. Another notable segments are the formal and informal segments. The distinction between the formal and informal segments has not always been easy to define. The formal sector is regulated and contributes to the government coffer. The definition of the informal labour market according to Ncube（2008） revolve around a sector that is unregulated， with unregistered enterprises， or one which does not contribute to the government treasury.

ILO defines the informal economy as an economy where all activities， by workers and economic units are either in law or in practice， not covered， or insufficiently covered by formal arrangements. Their activities are not included in the law， which means they are operating outside the formal reach of the law， or they are not covered in practice， which means that even if they are operating within the formal reach of the law， the law is not applied， or not enforced.

Smith （1994） defines it as the ‘market-based production of goods and services， whether legal or illegal， that escapes detection in official estimates of GDP’. Definitions aside， the informal economy is a large and rapidly growing sector in Nigeria.With stagnant employment growth in the formal sector， the informal economy is fast becoming the key employer in Nigeria， as well as a major contributor to gross national income （GNI） in the country. The government is even encouraging young graduates to go into this sector with their promotion of self employment strategies. Various strategies have been put in place to encourage young people into this sector. These strategies include； the National Poverty Eradication Programmes （NAPEP） and many empowerment put up by the government to engage youth and women in a job that can feed them. The growth performance in Nigeria has not met the employment aspiration of the economy as the growth took place in the informal sector where there is high rate of poverty and low level of salaries.

2. THE MODEL AND THE METHOD OF ANALYSIS Several empirical studies employing various macroeconomic variables （as suggested by theory） in crosscountry analysis regressions have been employed to examine the employment-economic growth relationship in both developed and developing nations. For instance， Levine and Renelt （1992）， Barro （1991） and Becker et al. （1990） used simple regression analysis to assess the relationship between the level of employment and other macro-variables highlighted in their studies. Pandalino and Vivarelli （1997） used panel data to study the employment/ economic growth relationship in G-7 countries. Fofana（2001） studied the employment-economic growth relationship for a single country， Cote d’Ivoire using time series data for the study. The methodology of this study takes after Fofana’s， and as such we specify our basic model as：

In a Cobb Douglas growth model；

Table 1 above shows the unit root test of the variables used in our analysis. Employment variable （Empt） has unit root as the 1 hypothesis of employment has a unit root is accepted. But the variable is integrated of order 1 （I （1））. The GDP growth rate variable rejected the 1 hypothesis of existence of unit root at levels. While the variable for foreign private capital is integrated of order one （I （1）） and public expenditure is integrated of order two （I （2））. Thus， not all the variables are stationary. As a result， we investigated the combination of the variable for possible stationarity using the Johansen method as explained above. This is the cointegration test as in tables below.

R2 = 0.677267 AIC= -1.109994

R—2= 0.506408 SC=-0.630054

F-statistic =3.963897

Table 4 above shows the analysis of the impact of growth on employment in Nigeria. The variable GDPGR used to proxy growth has positive but insignificant impact on employment. This is in line with Hussain， and Siddiq and Iqbal （2010）， who observe that growth is the pathway to decrease in unemployment in Pakistan. It also corroborate the study of Sodipe and Ogunrinola（2011） who observe that there is positive relationship between employment and economic growth. But while their study finds that this relationship is significant， our own conclusion is that the relationship is not significant， the foreign private capital has negative and significant impact on employment in Nigeria. This can be as a result of the fact that most of the multinationals that most of the time operate in the oil sector that have low employment absorptive capacity. The public expenditure variable is positive and significantly related to employment in Nigeria. This is against Olapade and Olapade （2010） who observe that there is no significant relationship between employment and economic growth in Nigeria.

CONCLUSION

Employment in the Nigerian economy has been seen not to be supported by economic growth in the country. It has been seen that even though there has been persistent economic growth， it has not led to increase in employment. Though there is positive relationship between the two variables， it is not significant. This may be as a result of the fact that the agricultural sector that this growth is occurring is a traditional sector that does not attract skilled labour. The significance of public expenditure is a pointer to the fact that if the government should make conscious effort to engage in expenditure that will encourage growth in employment there may be decrease in unemployment in the country. These can be in form of labour intensive industries.

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