llorin Journal
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Bisi Adedayo
J. O. Fayeye
M. A. Ijaiya
L. Badmus
G. T. Arosanyin
R. A. Olawepo
O. L. Ovwasa
--------
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Ilorin Journal of Business and Social Sciences
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Ilorin Journal of Business and Social Sciences Vol. 8, .Nos. 1&2. 2003
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CONTENTS
Articles
Reflections on the Imperative of Transparency and Accountability
for Good Governance — Prof. A. E. Davies…………………..........
An Empirical Analysis of the Risk Profile of Quoted Firms in the
Nigerian Stock Market — Samuel Bayode Oludoyi......……….........
An Empirical Investigation into Generic Competencies as Predictive
Characteristics of Managerial Effectiveness
-- Dr. J.A. Adeoti & Dr. Remi H. Samuel....
Managing the Nigerian Rural Environment for Sustainable
Development through Participatory Rural Appraisal
— Dr. R. A. Olawepo......…………...............
Conceptualising National Interest and National Security in Nigeria:
A Strategic Perspective -- Dr. (Mrs.) A. J. Omede……….................
Determinants of Unemployment and Labour Market Efficiency
in Nigeria
— Dr. J. A. Bamiduro……............................
Strategic Management Option for Sustainable Public Transport
Corporation
— Dr. Olujide Jackson & Adeoti J. 0............
Changing Structure of Intra-Urban Road Network in Ilorin,
Nigeria (1963-1999)
— Dr. A. J. Aderamo................………….....
Commercial Banks' Credits and non-oil Export Promotion in Nigeria
— M. A. Ijaiya…………...............................
Job Satisfaction among Employees in Kogi State Civil Service
—
Bamidele Adeboye Adepojit & Memuna O. Audit.............
The Impact of Aggregate Fiscal and Monetary Policy Instruments
on Counter-cyclical Policy Objectives in Nigeria - A Preliminary
Examination
— Dr. G. O. Atoyebi.............................…….
New Product Planning and Development: A Veritable Tool for
Competitive Advantage — M. A. Areniu.........................…………….
Fraud in Nigeria's Financial System: Evidence from Commercial Banks
— M. A. Ajayi....................……………..........
Chemical Characteristics of Shallow Wells in Ibadan North East
L.G.A. Oyo State
— I. P. Ifabiyi.....................…………….........
Ethno-Religious Conflicts and Political Instability in Nigeria
— E.E. Lawal.....................................……....
Drainage Problems in a Tropical Environment: Perspectives on
Urban Quality Management — Dr H. I. Jimoli..................………......
Research Note
17.
Selections and Formulation of a Research Problem
-- Dr. Adebisi Adedayo....…………...............
ii
Pages
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8
21
32
40
51
59
65
75
84
94
103
111
118
124
133
141
Ilorin Journal of Business and Social Sciences Vol. 8, .Nos. 1&2. 2003
Determinants of Unemployment and Labour Market Efficiency
in Nigeria
DR. J. A. BAMIDIRO
Dept. of Business Administration, University of llorin. Nigeria
Abstract
Labour market policies - minimum wages, job security regulations and social security - are
usually intended to raise welfare or reduce exploitation. But they actually work to raise the
cost of labour in the formal sector and reduce labour demand, a major factor responsible
for unemployment. unemployment in Nigeria has become a major problem for policy
makers. The main objective of the paper is to propose different perspective on labour
market policies and institutions and identify the major determinants of unemployment in the
country. The paper reviews extensively, various theories of unemployment and provides an
analysis to assess the relative, importance of the variables known to contribute to
unemployment in Nigeria. These factors should be taken into serious consideration in any
policy measure aimed at curbing unemployment in Nigeria.
Introduction
Unemployment differs greatly between countries. It has been argued that this is at least in part
due to differences in social institutions, including wage-setting arrangements, the degree of labour
flexibility and ultimately, different levels of labour productivity (Layard et. al. 1991). The differences
in labour productivity are of particular importance if we allow for the effect of open-economy issues
upon unemployment, particularly in view of different exchange rate regimes.
Unemployment in the general sense is the situation of being without work. It is a problem
which has been with us for much of human history (Ashton, 1986). There are no regular and reliable
statistics on the distribution of unemployment in Nigeria. Measurement problems are magnified in the
case of developing countries in which Nigeria is one, because self-employment and work within the
family are much more prevalent than in industrial countries. For instance, for many women, the
distinction between working on a family farm, (therefore being a "worker") and taking care of the
home, (Hence being "inactive"), is tenuous as is the distinction between working being unemployed
and working in the informal sector for many men.
Unemployment has always been perceived as a drain on society. Much of the analytics of
what might be called the "fundamentals" of labour market theory have been around for a long time.
However, the subject of unemployment has witnessed many important, exciting and challenging
developments over the past decades. How powerful are market forces to remedy the situation and what
should governments be doing to tackle the problem of mass joblessness'?
At a theoretical level, the development of expectations - augmented Phillips curve analysis
(Friedman 1968) and new classical economists (Lucas 1981, Peel 1990), seemed to suggest that an
economy could only temporarily be disturbed from its natural rate of unemployment by shifts in
nominal aggregate demand. Various policies to create additional
DR. J. A. BAMIDURO
52
employment and reducer unemployment have thus been tried and it seems that much could be learned
from a comparative analysis across countries.
The paper thus looks at a range of potential causes of and cures for unemployment and
considers limits to the accuracy and simultaneous applicability of policy recommendations. Nobody
will know for certain how labour markets are going to develop in the next 30 or 40 years. After all. in
I960. Who would have predicted those factors which, subsequently, have so influenced the character of
our working lives: the Information Technology (IT) revolution, the demise of manufacturing industry,
the explosion of female' employment, and so on.
Conceptual Framework
Labour institutions and the political economy
One should not hesitate to stress that unemployment in a given society takes various forms.
Fashoyin (1984), identified three forms of unemployment in the Nigeria economy. These are structural,
hard-core and women unemployment. One of the problems of deciding whether an unemployment rate
is actually "high" or "low" occurs because the most popular model of the labour market sets the
equilibrium unemployment rate at zero, in practice, however, even the tightest labour market displays a
strictly positive unemployment rate.
There is a growing awareness among labour analysts that labour market institutions and
policies play a more complex political role than previously recognized. Consonant with this position, is
a model of how labour market interventions influence attitudes towards reform market programs and
modes of expressing those attitudes.
Time Pattern of Benefits And Costs Model
1st Assumption: Consider an economic reform that pays off in the future but that costs workers in the
present.
For simplicity, assume that workers initially receive numeraire wage O and that the
programme creates two classes; WINNERS who earn W(>O) after they attain that status; and 1
OSF.RS. who earn -I.,(<O).
Assume further, a transition probability of p per period for moving from the losing to the
winning group.
Under these conditions, the value of the reforms in year t will be.
(i)
pWΣ(I-p) t-L(l-p)t
= W - (W+L) (1-p)t where the summation (Σ) is from t=o to t-1).
In continuous time, we have
(i)
-L exp.-pt W(l-exp-pt) = W-(W+L )exp-pt)
which is negative at low values of t(= -I.) in year o but approaches W as t rises.
The present value of the change from O to oo at discount rate (r) is given as:
(ii)
W∫(exp-rt)-(W+L) ∫(exp-rt -pt) = (pW = rL.) Ir(r+p)
which must be positive for the programme to be worthwhile.
This present value model provides a framework for considering the pattern of
Determinants of unemployment and labour market efficiency in Nigeria
53
support for labour market reforms among workers and over time.
Older workers have few years to reap benefits, so will be high for them, implying that they will be less
supportive of reforms than younger workers.
More interesting, equation (ii) shows that workers may prefer a program that generates more
inequality of earnings (W-L) to one that generates less inequality. They will prefer greater inequality
when their chance of becoming a winner exceeds their discount rate (p>r) since they then benefit more
from high future W than from lower current L. This is termed "turned effect", according to which
losers in the early phase of growth tolerate rising inequality because they view the gains of others as a
sign of future gains for them.
What happens if we extend the analysis to a changing labour force, with new cohorts
favourable to reforms entering the labour force and older cohorts leaving the labour force to become
pensioners in each period? The influx of new workers has the potential for counter balancing the loss
of support among existing workers.
Economic growth and development: Impact on labour market
Existing research findings have indicated that economic development in Nigeria has passed
through both booms and slumps. (Ubeku. 1983. Ekudare 1973). The country experienced stagnation
during the pre-colonial and early colonial periods. The sources of the downturn can be traced to a
number of factors inside and outside the national economy. Within the economy, there is the inability
to secure the necessary inputs into the production systems (Oloko. 1983). No reasons accounted for
this. First, the inputs themselves may not be generally available in the environment as natural
resources. Second, there is often the inability to pay the local and overseas sources willing to supply
them.
Another source of recession is traceable to the deficiencies and malfunctions of organisational
production processes. Inept production engineering and fraudulent practices in sales departments may
decelerate the rate at which goods and services become available to their potential users.
Perhaps the most important sources of the recession in Nigeria are the failure to engage in
long range plans and forecasts. Business and government are both guilty of this. The planning process
is crippled by inadequate and inaccurate information. Evaluations of plans are not seriously conducted.
Where this is done, recommendations from such expert evaluations are often considered "too
technical" by the leadership (Phillips, 1983).
Other source of the recession with the country can be tailed to the political process. There are
interlinks and interchanges between economic process and society. The government is the direct or
indirect supplier and allocation of land, capital and credit needed for stable and sustained economic
growth, and supply of which are always unable to meet up with the demand.
However, in 1982, the decline in Nigeria's external sector was so bad that panicky measures
were taken. These initial measures included reduction in the levels of imports and the encouragement
of local industries. The ban on importation perhaps aided the curtailment of production activities in all
sectors of the economy. It brought about unemployment and widespread shortage of goods. There is
evidence, scratchy and
DR. J. A. BAMIDURO
54
understated possibly, that unemployment increased as employers were forced to lay-oft redundant
workers.
The Nigerian Labour Congress estimated the loss of one million workers in 1983. The
yearbook of Labour Statistics (ILO. 1984) shows that the unemployment rate has generally risen. By
November 1982. 20.000 jobs were lost from the textile industries representing about 40 per cent of the
unionized workforce in this sector. 2.100 about 2 per cent were lost from the oil industry. Shipping,
clearing and forwarding lost 2.500 (about 5 per cent) and 500 (3.S4 per cent) were lost from footwear
and rubber industries. By June 19S4. The reduction of government expenditure on buildings and
construction activities had resulted in the loss of a total 66.607 (41.62 per cent) jobs, compared with
160.000 jobs in 1982) in the construction industry (Fajana. 1985).
Table 1: Distribution of Total And Retrenched Employees (October 1982 -October 1983) By
Employers
Employer
% Share of Total Employees
% Share of Retrenched Staff
Federal Govt. (Civil & Parastatals)
23.6
2.8
State Govt. (Civil & Parastatals)
51.7
25.9
Private Sector
24.7
71.3
All Employers
100.0
100.0
Source: National Manpower Board (1983) Report of the Shuttle Employment Enquiries.
The manpower studies number 21 (1983) presents general trends on the extent of redundancy.
In the survey, employment in private establishments declined by about 1 per cent, signifying an excess
of withdrawals (retrenchment, resignations, etc.) over recruitment. In table 1. The above trend
represents some of the effects of the pre-SAF measures taken to revamp the battered economy. Certain
industries (construction and manufacturing) were more affected and certain states of the Federation
(Cross River, Kano. Borno and Plateau) experienced a relatively high incidence of retrenchment. The
picture however continued with renewed vigour. See table 2.
Table 2: Economic Indicator: Unemployment Trend
A. Year
No. of Unemployed (Urban and Rural)
1976
750,000
1978
500,000
1979
650,000
1980
350,000
1984
1,240,000
1985
2,710,000
1986
2,640,000
1987
2,570,000
Source: Computed from Federal Office of Statistics (FOS) figures.
Problems of unemployment
The lack of jobs for qualified and willing individuals has become the scourge of modern
capitalist and quasi-capitalist societies the world over (Nwankwo 1988). Undoubtedly, the duration of
high level of unemployment in Nigeria has remained long over
Determinants of Unemployment and Labour Market Efficiency in Nigeria
55
the years confirming the chronic situation of the unemployed. One salient way in which an
unemployed is affected by this social malaise is in the realm of income. The loss of income which
consequently makes living difficult, placed the unemployed on the brink of life threatening poverty,
facing crippling shortage of life's essentials, or the separation, vagrancy, begging and imprisonment
which befall thousands of would-be workers.
Unemployment affects a person's health and that of his family. When someone, especially a
breadwinner has been out of work for a long time, he is being pushed towards despair by two terrible
forces. On the one side is the issue of poverty. On the other side is the prospect of unemployed ability.
Consequently, psychological imbalances set in, thus, unemployment induces extra strains which
increases the probability that certain outcomes in the form of ill-health, poverty and crime will occur.
(Aston 1986).
For the society at large, unemployment involves increasing costs in the form of lost
production, healthcare and welfare benefits as well as social protests and dislocation. The costs to the
society are quite enormous embracing monetary cost, health cost vis-a-vis physical health and mental
health and crimes.
Other human costs of unemployment are psychological costs and the cost of increased crime.
Employment. Michel (1975), argued, performs the latent function of satisfying our needs for social
interaction, the deprivation of which reduces psychological well-being. Lack of job and especially
abrupt disruption or termination of employment can be disruptive or even devastating.
The skill of the individual is not left unaffected. Skills, in the opinion of Gilbert (1989), have
never been given the chance to develop for lack of use. In terms of the cost of unemployment, it means
that most of the direct cost of long term unemployment is carried by individual and their families
through financial deprivation, poverty and ill-health. The economic costs are shouldered by the state.
Alternative ways to tackle Nigerian joblessness: What we can learn from
European unemployment experience
Approaching twenty million people are out of work in European Union. This represents a
higher rate of unemployment than the OECD average. Japan and the United States, for example,
display markedly lower unemployment rates than those of *EU members. There have been changes
over time in the relativities between countries - notably the recent rise in German unemployment while
UK unemployment has fallen. There is also less-than-perfect synchronization between phases of the
business cycle in different member states (Caporale 1993).
However, the nature of the unemployment problems faced by individual countries can be very
different. Youth unemployment is distressingly high in Spain, Italy and France; much less of a problem
in Germany. In most European Union countries female unemployment rates are markedly higher than
those for males; however, in the UK women are less likely to be unemployed than men.
The solutions to this which Nigerian policy makers can learn from are expatiated. In principle,
governments intervene to increase the demand for labour-intensive output and
DR. J. A. BAM1DURO
56
thus shift the labour demand curve to the right. Glyn and Rowthorn (1994) call for additional
expenditure on welfare services and infrastructural programmes across the EU. In a similar vein to
Glyn and Rowthorn, the European Commission, suggested a number of areas in which governments
could create demand for service such as home helps, childcare. housing improvements, cultural
developments and environmental protection services (European Commission 1995). These are
intended to be "real", sustainable jobs, open to all. rather than short-term make work schemes for lowskilled or hard-to-place long-term unemployed. Let us consider the following:
1.
Labour market deregulation
Labour market regulation takes many forms. One of the most obvious is the institution of a
minimum wage, but equal pay legislation and mandated benefits holidays, pension entitlements,
parental leave and so forth.
Standard economic theory predicts that the introduction of an effective minimum wage will
tend to reduce employment conversely, the abandonment of a minimum wage, would tend to increase
it.
The danger with the imposition of minimum wages is that they push up wages not only for the
low paid but for all groups as workers bargain to restore relativities.
Another aspect of labour market deregulation concerns trade unions. Typically, European
Unions enjoy legal privileges which enhance their bargaining position that is, push the wage-setting
curve to the left. In Nigeria, it is assumed that a highly centralized system of collective bargaining
could provide labour market outcomes as efficient as those produced by a decentralized system where
unions played a minimal role.
2.
Job Subsidies, Job Creation And Workforce
One solution often proposed for unemployment is the creation of jobs either by subsidizing
private sector employers or by the government directly employing the jobless in make work schemes.
A number of El' member states make considerable use of such measures. Table 3 shows an impression
of the scale of subsidized employment.
Table 3: Subsidized Employment: Participant Inflows As a Percentage of the Labour Force, 1994
Belgium (1993)
Denmark
Finland
France (1993)
Germany
Spain
Sweden (1993-1994)
Source: OECD (1995).
Subsidies to Regular Employment
in Private Sector
0.6
0.1
1.9
0.5
0.2
0.1
0.7
Direct Job Creation
(Public or Non-Profit)
3.0
1.1
3.8
1.7
1.0
0.8
3.0
There is a theoretical literature concerning recruitment subsidies dating back to
Determinants of Unemployment and labour Market efficiency in Nigeria
57
Kaldor (1936) and including an article by Layard and Nickell (1980) when spells out the problem
involved in devising a genuinely marginal subsidy to employment.
However. Dennis Snouer {1994} argues that the long-term unemployed could use part of their
unemployment benefits to provide vouchers for firms that hire them. Another way of looking at the
issue is to observe that generalized recruitment subsidies ought to have a similar effect as payroll tax
reductions since payroll taxes are ultimate by largely borne by workers themselves even though they
may be "paid" by employers. Thus, much of the reduction in such taxes is likely to be eaten up in the
long run by pay increases which leave employment unchanged (Ormerod 1996).
3.
Improved Skills And Training
The unskilled typically suffer from higher unemployment rates than the skilled. Moreover, the
demand for skills has been growing over time while the availability of work for the unskilled has been
declining across Europe. It seems plausible, therefore, that raising the average skill level of the
workforce should lead to lower unemployment.
Many EU member tales run substantial programmes of retraining for the unemployed which
Nigeria could emulate. For example, Britain planned to spend 580 million pound on sonic 225.000
unemployed under the Training for Work programme in the 1995-96 financial year. Thus Nigerian
retraining programmes such as Working For Yourself programme and the Train-the-Trainer
programmes of the Industrial Development Centres should be encouraged. Thus, the skills needed to
obtain work are not in the main technical ones, but embrace personal drive, effective job search,
networking, willingness to adapt and so on.
Conclusion
The problem of mass unemployment which represents a gross under-utilization of our human
resources should be taken seriously by the government at all levels. Given the seventy of the
retrenchment problem, employers, workers and the state seem to show more distress. This is because
retrenchment and redundancy payments pose a challenge to the continuity and liquidity respectively, of
the employer. It has job, income and morale implications for the workers and unemployment
implications for the macro society as well as the tendency for crimes to increase given the socioeconomic idleness and poverty of laid-off workers and their loss of income. An apathetic acceptance of
high unemployment for another generation is unacceptable and may ultimately threaten the corporate
existence of the nation.
It is therefore recommended that some combination of a less restrictive macro-economic
policy in terms of expansion of infrastructure investment and the stimulation of other 'real' jobs,
involving public and private partnership, in areas where the labour market is unlikely spontaneously to
generate employment is suggested.
A critical examination of existing labour market regulation and a brake on further regulatory
initiatives and reform of the tax and benefit systems are desirable. Finally, it is suggested that
government should focus on retraining on smaller, well-targeted schemes for recognizable areas of
skill shortage and working-for-yourself programmes - capable
DR. J. A. BAM1DURO
58
strategies to solve or reduce the rate of unemployment to the bearest minimum.
However, much depends on the politics rather than the economics of the situation government
at all levels face.
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