UNEMPLOYMENT AND INFLATION IN NIGERIA 2013

CHAPTER I

INTRODUCTION

1.1 BACKGROUND OF THE STUDY:

Undoubtedly, parts of the macroeconomic goals which the

government strives to achieve are the maintenance of stable domestic

price level and full-employment. Macroeconomic performance is judged

by three broad measures- unemployment rate, inflation rate, and the

growth rate of output (Ugwuanyi, 2004).

Unemployment has been categorized as one of the serious

impediments to social progress. Apart from representing an enormous

waste of a country‟s manpower resources, it generates welfare loss in

terms of lower output thereby leading to lower income and well-being

(Raheem, 1993).

Inflation on the other hand, has been a major problem in the

country over the years. Inflation is a household word in many market

oriented economies. Although several people, producers, consumers,

professionals, non-professionals, trade unionists, workers and the likes,

talk frequently about inflation particularly if the situation has assumed

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a chronic character, yet only selected few know or even bother to know

about the mechanics and consequences of inflation.

Prior to the emergence of what became to be known as the

unemployment and inflation trade-off or Phillips curve in 1958,

unemployment and inflation were considered and treated in economics

as distinct subjects. Keynes for instance described inflation as the

excess of expenditure over income at full-employment level. He

contended that the greater the aggregate expenditure, the larger the

inflationary gap and the more rapid the inflation. As for unemployment,

the Keynesian economists hold that an increase in unemployment

reduces income, which reduces consumption, and reduces aggregate

output. As a result, employment can be increased by increasing

consumption or investment.

The monetarist on the other hand, explained inflation in terms of

excessive growth of the money supply relative to real output. Their view

on unemployment, however, is framed within the context of Milton

Friedman‟s permanent income hypothesis. Based on the Permanent

Income Hypothesis (PIH), a reduction in employment and current

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receipts only affects output to the extent that the anticipated income

declines.

Each school of thought offered its own policy solutions. There were

however, no major attempts made to examine inflation and

unemployment simultaneously.

It was not until 1958, following the introduction of Phillip‟s curve by

A.W. Phillips, that traditional economics began to examine

unemployment and inflation simultaneously, thereby postulating a

trade-off between inflation and unemployment- a lower inflation rate

must be willing to put-up with a higher level of unemployment, and

vice-versa. However, economists such as Milton Friedman and Edmund

Phelps disapproved Phillips‟ curve thesis, stating that the trade-off

between unemployment and inflation only existed in the short-run and

that in the long-run, the Phillips curve is vertical. This led to the

introduction of the Natural Rate Hypothesis.

Also, empirical analysis carried out by other economists over the

years, have in one way or the other disproved the authenticity of the

trade-off thesis as postulated by Phillips. Both high inflation rates and

high unemployment rates were discovered to co-exist, giving rise to

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what has come to be known as stagflation. These twin problems are

currently crucial elements of most Less Developed Countries‟ economic

crisis.

Unemployment and inflation are issues that are central to both the

social and economic life of every country. The existing literature refers

to unemployment and inflation as constituting a vicious circle that

explains the endemic nature of poverty in developing countries. And it

has been argued that continuous improvement in productivity- which

brings about the adequate supply of goods and services - is the surest

way to breaking the vicious circle.

The Nigerian experience of the crisis of unemployment and inflation

was delayed until the early - and mid- 1980s with the collapse of oil

prices on which the economy had become dangerously dependent on.

Before the 1980s, previous records showed that the Nigerian economy

was able to provide jobs for its increasing population, and was able to

absorb considerable imported labour in the scientific sectors. The wage

rate compared favourably with international standards, the inflation

rate was moderate, and there was relative industrial peace in most

industry sub-groups.
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The oil boom in the 1970s led to the mass migration of youths into

the urban area, seeking to get work. However, following the recession

experienced in the 1980s, the available data revealed that, the problem

of unemployment started to manifest, precipitating the introduction of

the Structural Adjustment Programme (SAP), the rapid depreciation of

the naira exchange rate and the inability of most industries to import

the raw materials required to sustain their output levels.

A major consequence of the rapid depreciation of the naira was the

sharp rise in the general price level (inflation), leading to a significant

decline in the real wages. The low wages in turn fuelled a weakening

purchasing power of wage earners and a decline in the aggregate

demand. Consequently, industries started to accumulate unintended

inventories and, as a rational economic agent, the manufacturing firms

started to rationalize their market prices. With the simultaneous rapid

expansion in the educational sector, new entrants into the labour

market increased beyond absorptive capacity of the economy. Thus, the

avowed government‟s objective of achieving “full employment” failed.

The research work is therefore intended to access the applicability of

the trade-off thesis in Nigeria.

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1.2 STATEMENT OF THE PROBLEM:

Anthony De Mello, in his famous book titled „Awareness‟ stated that,

“Life is a banquet. And the tragedy is that most people are starving to

death”. This situation is prevalent in the Nigerian economy. Nigeria is

richly blessed with abundant human and natural resources, but still

finds itself battling with high unemployment and inflation rates, due to

years of neglect of the social infrastructures and general

mismanagement of the economy. Previous governments in their own

capacities have been embarking on various policies to control inflation

and reduce the level of unemployment in the country. However,

government efforts have not yielded the desired results as these

problems are known to be skyrocketing rather than plummeting.

The problem of inflation in Nigeria was brought about by the oil glut

in 1981, which resulted into balance of payment deficits leading to

foreign exchange crisis that necessitated various measures of import

restrictions. These restrictions reduced raw materials for domestic

production and spare parts for machinery operation. The resultant

shortage of goods and services for local consumption spurred the

inflation rate to rise from 20% in 1981 to 39.1% in 1984 (Itua, 2000).
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With the adoption of the Structural Adjustment Programme (SAP)

in 1986, there was a temporal reduction in fiscal deficits as government

removed subsidies and reduced her involvement in the economy. But as

the effects of the Structural Adjustment Programme (SAP) policies

gathered momentum, there was a fall in the growth rate of Gross

Domestic Product (GDP) in 1990 from 8.3% to 1.2% in 1994, with

inflation rising from 7.5% (1990) to 57.0% (1994). In 1995, inflation rate

rose to 72.8% due to increased lending rate, the policy of guided

deregulation, and the lagged impact of fiscal indiscipline.

The increase in unemployment in Nigeria, on the other hand, has

resulted to decrease in consumption, due to low income earned by the

citizens, thereby resulting to low production- the inability of firms to

sell their goods, forces them to reduce their output. This has led to

decrease in the economic growth of the nation.

Unemployment also has social consequences as it increases the rate

of crime. Also, being without a job in Nigeria, is as good as losing your

self-respect and self-esteem among the people of your age bracket. The

proportion of workers who are unemployed shows how well a nation's

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human resources are used and serves as an index of economic

movement (positive or negative).

In 1999, the unemployment rate was 17.5%, while at the end of

President Olusegun Obasanjo‟s administration in 2007; the rate of

unemployment had reduced marginally to 12.7%. From 1999 to 2007,

the rate of unemployment averaged at 13.1% – still quite high, since 5%

is perceived as the accepted rate. In 2008, the rate of unemployment

was almost 14.9% and rose drastically to about 23.9% in 2011. The

unemployment rate has been rising from 1980 to 2011. A recent forecast

shows that the rate would continue to increase up to the year 2020.

In the light of the foregoing analysis, the research work will be

guided by the following question:

1. Is there any trade-off relationship between unemployment and

inflation in Nigeria?

2. Does government expenditure have any significant impact on

unemployment?

3. Do increases in the gross domestic help reduce unemployment?

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1.3 OBJECTIVE OF THE STUDY:

The primary objective of this study is to examine if there is any trade-

off relationship between unemployment and inflation in Nigeria. Other

objectives include;

a. To ascertain the impact of government expenditure on

unemployment.

b. To examine the impact of gross domestic product on

unemployment.

1.4 THE RESEARCH HYPOTHESIS:

The study will be guided by the following hypothesis;

1. Null hypothesis (Ho): There is no trade-off relationship between

unemployment and inflation in Nigeria.

2. Null hypothesis (H0): Government expenditure has no impact on

unemployment in Nigeria.

3. Null hypothesis (H0): Gross domestic product has no significant

impact on unemployment in Nigeria.

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1.5 SIGNIFICANCE OF THE STUDY:

Why has unemployment and inflation continued to rise despite the

substantial increase in the nation‟s GDP? Is it that successive

governments neglected the issue of unemployment and inflation or has

the twin problems defied all economic theories? These are questions

that need immediate answers, because unemployment and inflation are

current issues that is affecting our country and which is being discussed

by both experts and lay-men alike.

Therefore, this study will be of paramount importance to economic

decision-makers, as it will equip them with the knowledge and skills

needed to tackle the pressing issue of unemployment and inflation in

our country. Also, to those who would like to carry out further research

on this topic, it would be of valuable help in the course of their research.

1.6 SCOPE OF THE STUDY:

The research work intends to study unemployment and inflation

situation within the Nigerian economy. The study will cover the time

period 1986-2011 (a period of 25 years); this is to ensure updated

information and to follow the trend. The range was chosen based on

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data availability and to have adequate observation for a meaningful

analysis.

1.7 LIMITATIONS OF THE STUDY:

When carrying out research in social sciences, the data that one

generally encounters are non-experimental in nature, that is, not

subject to the control of the researcher. Therefore, this lack of control

may create special problems for the researcher in pinning down the

exact relationship that exists between unemployment and inflation in

Nigeria.

In the course of the study, the researcher tried to access the CBN

statistical bulletin of 2010, but was unable to get data for the figures of

unemployment and inflation in 2011. He therefore resorted to accessing

the internet for the missing figure for 2011. The researcher also

encountered the challenge of inadequate and incomplete information

from the internet and the school library. The researcher was also faced

with the problem of unavailability of funds to carry out the research

work.

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CHAPTER II

REVIEW OF THE RELATED LITERATURE

2.1 THEORITICAL LITERATURE:

2.1.1 UNEMPLOYMENT:

Unemployment has no precise definition in economics literature. To

the layman, unemployment means a state of joblessness, while to

economists; it is seen as the percentage of the labour force that is

without job but is able, willing, and qualified to work. In other words,

no matter how unemployment is defined; the underlying philosophy is

that those who are expected to work are indeed not working (Gbosi,

2004).

The level of unemployment in a nation is measured by calculating

the unemployment rate, i.e.

Unemployment Rate (U) = Number of people unemployed X 100

Labour force 1

2.1.1.1 TYPES OF UNEMPLOYMENT:

Structural Unemployment: This reflects the time taken to acquire

human capital. Workers who find out that their skills and

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experience have become obsolete or unneeded, thus find out that

they have no marketable talents. They are structurally

unemployed until they adapt or develop skills that employers

want. Structural unemployment may also occur as a result of

changes in production techniques.

Frictional unemployment: This unemployment occurs because it

takes time for workers to move from one job to another. While it

may be the case that some workers find new jobs before leaving

their old jobs, a lot of workers leave or lose their jobs before they

have another work lined up. The retrenched workers most look

around for a good job. During this period, they are regarded to be

frictionally unemployed.

Seasonal unemployment: This is due to seasonal variations in the

activities of particular industries caused by climatic changes,

changes in fashion or by the inherent nature of such industries.

For instance, workers that work in construction companies remain

unemployed during the raining season.

Cyclical Unemployment: This type of unemployment (also known

as Keynesian unemployment) results from the operation of the

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business cycle. If there is a decrease in the quantity of goods

demanded or there is over-production which results in fall in

prices, industries will be affected, which will lead to lay-off of

workers. The workers affected will suffer from cyclical

unemployment. Therefore, cyclical unemployment occurs when

there is a fall in demand.

2.1.1.2 THEORIES OF UNEMPLOYMENT

In economics literature, there are different theories of unemployment,

such as the Keynesian theory, classical theory, the efficiency-wage

theory, the insider-outsider theory, etc.

Below, the Classical and the Keynesian theories of unemployment

will be briefly discussed.

a. The Classical Theory of Unemployment:

The fundamental principle of the classical theory is that the

economy is self-regulating. The classicists assume the existence of full

employment without inflation. Given wage-price flexibility, there are

automatic forces in the economic system that tends to maintain full

employment, and produce output at that level.

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In the classical model, the equilibrium income and employment are

determined largely in the labour market. At lower wage rate more

workers will be employed. That is why the demand curve of labour is

downward sloping.

The classicists also hold that there is always full employment, so

that the existence of unemployed workers is a logical impossibility. Any

unemployment which existed at the equilibrium wage rate was due to

frictions or restrictive practices in the economy. Thus full employment

is regarded by the classicists as a normal situation, while

unemployment is abnormal.

b. Keynesian Theory of Unemployment:

Keynes was given the credit of having demolished the theories of

19th century economists who had taught that, if left to its own devices,

capitalism would always and of its own accord tend towards full

employment. Keynes taught that the economy could settle in

equilibrium at any level of unemployment. This meant that classical

policies of non-intervention would not work.

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In his theory (Keynes), it states that employment depends on

effective demand, effective demand results in output, output creates

income, and income provides employment. Thus, he regards

employment as a function of income. Also, effective demand depends on

the aggregate supply and demand function. Since Keynes assumed that

aggregate supply was stable, he concentrated on the aggregate demand

to fight depression and unemployment.

According to him, employment can be increased by increasing

consumption and/or investment. Consumption depends on income C(Y)

and when income rises, consumption also rises but not as much as

income.

The Keynesian framework, as examined by Thirlwal(1979), Grill

and Zanalda(1995) and Hussian and Nadol(1997), postulate that

increase in employment, capital stock and technological change are

largely endogenous. Thus the growth of employment is demand

determined and that the fundamental determinants of long-term

growth of output also influence the growth of employment.

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2.1.1.3 Causes of Unemployment in Nigeria:

The fundamental factor that accounts for the high rate of

unemployment in Nigeria includes the following:

 Economic Growth Rate: The overall situation in the country in the

80s, 90s and even in this decade has been very hostile to economic

growth and development. The high level of corruption,

mismanagement of public funds, harsh economic policies and the

insecurity of the Nigerian environment among other factors, have

dampened the spirit of economic growth for a long time. The

situation in the 90s was so terrible that analysts have described

the period as a lost decade to Nigeria in terms of economic growth

and development.

 Our Faulty Development Plans: Our past leaders‟ plan for the

establishment of more schools and colleges without setting up

industries that will absorb the upsurge of graduates from these

schools and colleges, resulting in high unemployment rate.

 Rising Population: Many writers have attributed unemployment

in Nigeria to the rising population. Our population increases

without a proportional increase in the avenues of employment

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opportunities. This has resulted in the inability of the economy to absorb

the increase in the labour force, thus, unemployment ensues.

 Neglect of the Agricultural Sector: The agricultural sector has

been the leading provider of employment in Nigeria especially in

the 60s and in the 70s when the sector provided employment for

more than 60% of the Nigerian population. However, the discovery

of oil brought about the neglect of agriculture in Nigeria, and since

the oil industry is capital intensive, it has had no positive impact

on unemployment reduction during the past years.

 Poor Enabling Environment: Nigeria‟s poor enabling

environment, coupled with its poor security, has reduced the

inflow of foreign investment into the economy, which would had

helped in boosting employment opportunities in the country,

through the setting up of industries that would absorb the

increasing labour force. Also, many job seekers who would have

embarked on self - employment programs are unable to do so

because of the hostile production environment. Others who make

are forced to wind up due to absence of infrastructures and the

overall heat of the investment environment.

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 Decrease of government expenditures in the real sector of the

economy: One of the aims of government spending is to increase

the employment rate in the economy, through the establishment

of job-creating industries, thus if government spending is not

directed to the real sector economy (such as in the establishment

of industries, plants, etc.), investment will reduce and

unemployment will increase.

 Interest rate: the rate of interest in the economy determines the

rate of investment and the level of unemployment in the nation.

Low interest rates provides the incentive for investor/businessmen

to borrow funds readily and establish job-creating establishments,

thus if the interest rate in high in an economy, investors will find

it difficult to borrow funds, thus leading to a reduction in

investment and the unemployment rate in the country.

2.1.1.4 The Consequences of Unemployment in Nigeria:

One of the adverse consequences of unemployment is that it usually

brings about a decline in a nation‟s total output of goods and services.

In fact, Bajoma (1996), also shares the view that unemployment reduces

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the Gross National Product (GNP) of a nation and of course contributes

to the low living standard of the people.

Whenever those who are expected to work in an economy are

gainfully employed, the economy will end up producing enough goods

and services for its citizens. To put it another way, the economy will be

operating in a higher production possibility curve. A production

possibility curve is a curve that shows the maximum output an economy

could produce in a given period using its available resources. If an

economy is not using its labour resources efficiently, it will end up

producing on a lower production possibility curve.

In recent years, Nigeria has been operating on a lower production

possibility curve. Rising levels of unemployment might have been

responsible for this unpleasant development. If our labour resources are

efficiently utilized, we shall be producing enough consumption and

investment goods on a higher production possibility curve.

Producing at a lower production possibility curve, has further led to

capacity under-utilization in all sectors of the Nigerian economy. The

overall result is that the economy will be characterized by sluggish

economic growth (Gbosi, 2004).

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Another consequence of unemployment is that it may transfer

financial resources from the domestic economy to the rest of the world.

The point being made here is that whenever a nation‟s labour resources

are not fully utilized, as has been the case in Nigeria in recent years,

fewer amount of goods and services will be available to the citizens.

Consequently, the average price level will rise substantially.

Unemployment also leads to an increase in crime rate in an

economy. Several studies have been carried out by economists and

sociologists regarding the relationship between unemployment and

crime rate. Their findings show that there is a direct relationship

between crime rate and unemployment.

To the individual, the impact of unemployment is the loss of income

associated with not working. If the head of a family is unemployed for a

long period, this will cause financial hardship for the whole family.

Furthermore, the psychological effect of unemployment on the

unemployed is a serious one. Specifically, the unemployed individual

sees himself as a nuisance to society. This is true in a country like

Nigeria where one‟s status is often associated with the job one holds.

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2.1.2 INFLATION:

Inflation can simply be defined as too much money chasing too few

goods, or can be alternatively defined as the persistent increase in the

general price level of a nation.

Inflation is commonly measured using the Consumer Price Index

(CPI). The consumer price index measures the changes in the price level

of consumer goods. It is calculated as:

CPI= Current year price index x 100

Base year price index 1

2.1.2.1 THEORIES OF INFLATION

Since it is specifically difficult to identify the factors that contribute

to inflation, many theories and concepts have been introduced for this

purpose.

a. Demand-Pull Inflation:

Demand-pull inflation is the traditional and most common type of

inflation. It takes place when aggregate demand is rising while the

available supply of goods is becoming less.

There are two principal theories about the demand-pull, that of the

monetarists and the Keynesians.

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The monetarists stress the role of money in the demand-pull

inflation. They state that when the money supply is increased in order

to increase production and employment, it creates an inflationary

situation with an economy.

Friedman (a monetarists), held that „„inflation is always and

everywhere a monetary phenomenon that arises from a more rapid

expansion in the quantity of money than in total output.‟‟

According to Keynes, an increase in general price levels or inflation

is created by an increase in the aggregate demand which is over and

above the increase in aggregate supply. If a given economy is at its full

employment output level, an increase in government expenditure (G),

private consumption (C) and private investment (I) will create an

increase in aggregate demand; leading towards an increase in general

price.

b. Cost-Push Inflation:

Cost-push inflation basically means that prices have been “pushed

up” by increases in costs of any of the four factors of production (labour,

capital, land or entrepreneur), when the companies are already running

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at full production capacity. The basic cause of cost-push inflation is the

rise in money wages more rapidly than the productivity of labour.

Cost-push inflation steams out from the demand for an increase in

real wages by trade unions. When wages are increased, firms tend to

raise the price of their goods in order to cover the increase in the cost of

production. Therefore, increases in price will lead to cost-push inflation.

c. Structural Inflation:

The structuralist theory of inflation, otherwise known as mixed

inflation is believed to be a combination of demand-pull and cost-push

inflation theories. The structuralists emphasize rigidities in supply as

the salient force in the theory.

The argument is that, as the economy develops, rigidities arise,

which lead to structural inflation. They hold that inflation will persist

as long as the structural limitations are not eliminated. The obstacles

are of production, institutional, social and cultural dimensions.

2.1.2.2 The Impact of Inflation on the Nigerian Economy:

Inflation affects different people in different ways. This is because of

the fall in the value of money.

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 Social effect: Inflation widens the gulf between the rich and the poor.

The rich become richer and the poor, poorer. Since majority of the

masses are poor in Nigeria, rising prices brings about

discontentment among the masses.

 Businesses: All types of businesses gain during inflation, due to the

increase in the price of goods and services.

 Debtors and Creditors: During inflation debtors (borrowers) gain and

creditors (lenders) loss. This is because, when inflation occurs, the

debtors pay their creditors with money which has a lesser value.

 Fixed income earners: All those who receive fixed incomes loss

during inflation. This is because, while their incomes remain fixed,

the value of money continues to fall with rising prices.

 Reduction in savings: When prices rise, the propensity to save

reduces, because people need more money to spend on goods and

services. As a result, investment and capital formation reduces,

which hinders production, therefore, economic growth.

2.1.3 UNEMPLOYMENT-INFLATION TRADE-OFF:

Even though unemployment is painful to those who have no source

of income, reducing unemployment is not costless. In the short-run, a

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reduction in unemployment may come at the expense of a higher rate of

inflation, especially if the economy is close to full capacity, where

resources are almost fully employed.

There are two possible explanations of this relationship- one in the

short-run and another in the long-run. In the short-run, there is an

inverse relationship between the unemployment and inflation (Phillips

curve), while it has been observed by economists that in the long-run

the concepts of unemployment and inflation are not related. The

relationship has presented regulators with a number of problems.

2.1.3.1 THE PHILLIPS CURVE

Phillips Curve was named after the British economist A.W. Phillips,

who first examined the relationship between the rate of unemployment

and the rate of money wage changes. His analysis was based on data for

the United Kingdom from 1861-1957.

Phillips derived an empirical result that there was an inverse

relationship between the rate of unemployment and the rate of increase

in money wages. Phillips found a consistent inverse relationship: when

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unemployment was high, wages increased slowly; when unemployment

was low, wages rose rapidly.

Fig. 1.1: The Phillips Curve

Figure 1.1 shows a typical Phillips curve fitted to data for the

United States from 1960-1969. The curve is convex to the origin which

shows that a percentage change in money wages rises with decrease in

the employment rate. If for instance, the government stimulates the

economy and lowers the unemployment rate from 6% to 5%, the figure

above indicates that the cost will be in terms of higher inflation, which

will increase from 1% to 1.7%. Thus there is a trade-off between the rate

of change in money wage and the rate of unemployment.

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Phillips‟ hypothesis gained support from Paul Samuelson and

Robert Solow, who were among the first researchers on the trade-off

thesis. Samuelson and Solow (1970) examined the relationship between

the two macroeconomics variables in the context of the United States.

The results led to a conclusion that there existed an inverse

relationship between unemployment and inflation rates in the USA.

Furthermore, Solow (1970) and Gordon (1971) confirmed the

existence of a negative trade-off relationship between unemployment

and inflation using U.S. macroeconomic data. These empirical findings

have been known as the “Solow-Gordon affirmation” of the Phillips

curve.

2.1.3.2 LONG-RUN PHILLIPS CURVE:

However, the Phillips curve faced strong oppositions from the

monetarist school, among them was the American economist Milton

Friedman and Edmund .S. Phelps.

Friedman accepted that the Phillips curve existed, but only in the

short-run, while in the long-run (i.e. a period long enough for

participants in the economy to become fully aware of aggregate prices

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and inflation), the Phillips curve is vertical, and that there was no

trade-off between unemployment and inflation.

He taught that both the demand for and supply of labour depended

on the real wage rather than on the nominal wage. Since the nominal

wage was evaluated in terms of the current actual product price by

employers and in terms of the expected average consumer price level by

workers, employment could increase only as long as price level lagged

behind the actual price level.

In equilibrium, the expected and actual price levels are equal, and

so in equilibrium only one level of employment and output is possible.

Friedman dubbed the associated unemployment rate as the “natural

rate of unemployment”. The natural rate of unemployment is the rate at

which the actual rate of inflation is equal to the expected rate of

inflation.

By this argument, the long-run Phillips curve is vertical line at the

natural rate of unemployment.

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Fig.1.2: Expectations-Adjusted Phillips Curve.

Tobin (1971), in contrast to Friedman, believed that the Phillips

curve existed within limits. But as the economy expands and

employment grows, the curve becomes even more fragile and vanishes

until it becomes vertical at a critically low rate of unemployment.

Thus Tobin‟s Phillips curve is kinked-shaped, a part like a normal

Phillips curve and the rest vertical.

Similarly, Robert Solow like Tobin did not believe that the Phillips

curve is vertical at all rates of inflation. According to him, the curve is

vertical at positive rates of inflation and horizontal at negative rate of

inflation.

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2.1.3.3 STAGFLATION (POSITIVELY SLOPE PHILLIPS CURVE):

Stagflation is a situation where a country persistently suffers from

both high inflation and high unemployment. The existence of high

inflation accompanied by high unemployment has given rise to the

positively sloped Phillips curve.

In recent years, the apparent positive relation between inflation

and unemployment has been a source of great concern to policy-makers.

Friedman quoted from a recent speech by Prime Minister Callaghan of

Great Britain:

“We used to think that you could just spend your way out of a

recession and increase employment by cutting taxes and boosting

Government spending. I tell you, in all candour, that the option no

longer exists and that insofar as it ever did exist, it only worked by

injecting bigger doses of inflation into the economy followed by higher

levels of unemployment as the next step. That is the history of the past

20years (speech to Labour Party Conference, 28 September, 1976).

The same view was expressed in a Canadian government white

paper: “continuing inflation, particularly in North America, has been

accompanied by an increase in measured unemployment rates”

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(The Way Ahead: A Framework for Discussion, Government of Canada

Working Paper. October, 1976).

These are remarkable statements, running as they do directly

counter to the policies adopted by almost every Western government

throughout the post-war period.

One of the major causes of stagflation has been restriction in the

aggregate supply. When aggregate supply is reduced, there is a fall in

output and employment, and the price level will rise. The reduction in

aggregate supply may be due to a restriction in labour supply.

The restriction in labour supply, in turn, may be due to a rise in

money wages on account of strong unions. When wages rise, firms are

forced to reduce production and employment. Consequently, there is a

fall in real income and consumer expenditure. Since the decline in

consumption will be less than the fall in real income, there will be

excess demand in the commodity market, which will push up the price

level.

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2.2 EMPIRICAL LITERATURE

In recent years, there has been much discussion regarding the

applicability of the Phillips curve Ewing and Seyfried (2000). As

economic growth accelerated and unemployment fell in the late 1990s,

inflation failed to increase, causing many to question the existence of

any relationship between economic growth and inflation.

However, there is a good deal of evidence, empirically, that Phillips

curve held for most developed countries. In the studies conducted by

Lipsy (1960) and Routh (1959) in United Kingdom, Lipsy‟s conclusion

was not inconsistent with that of Phillips‟. Routh on the other hand

raised questions regarding the validity of the Phillips‟ data and his

method of aggregation, but his conclusions were roughly the same.

Studies using the Phillips hypothesis were extended to other

industrial countries. For instance, Klien and Ball (1959) studied the

wage-unemployment relationship for Belgium, France, Canada,

Australia, Japan, Italy, and West Germany. The results were

comparable with those of the United Kingdom and United States for all

countries, except France and Italy.

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Abachi Phillip (1998) studied the trade-off between unemployment

and inflation in Nigeria, using a trade-off model used by Rea (1983). His

studies revealed that there is no trade-off between inflation and

unemployment. Rather, the estimates established a non-linear curve

that slopes upwards. Also, his findings showed that causality existed

between inflation and unemployment, which implies that any attempt

to control inflation results to the aggravation of unemployment and

vice-versa.

Hogan (1998) examined the Phillips curve using the U.S.

macroeconomic data from 1960 to 1993. Results of that study revealed

that there had been a significant and negative relationship between

unemployment and inflation although the Phillips curve appeared to

over-predict the rate of inflation.

Turner and Seghezza (1999), employing the panel data method,

examined the Phillips curve in 21 OECD (Organization for Economic

Cooperation and Development) countries over the period from the early

1970s to 1997. To analyze the pooled data, Turner and Seghezza used

the method of Seemingly Unrelated Estimation (SURE) rather than the

OLS. The researchers concluded that the overall result provided a

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“strong support” for the existence of the “common” Phillips curve among

the 21 chosen member countries of OECD.

Hansen and Pancs (2001) examined the existence of the Phillips

curve in Lativa. They also found out that there is a significant

correlation between the unemployment rate and the actual inflation

rates.

Arratibel et al. (2002) analyzed the New Keynesian Phillips curve

with forward-looking expectations by using panel data. They found that

the unemployment rates have significant relationship with non-

tradable inflation rates. By contrast, Masso and Staehr (2005) used the

dynamic panel data method and failed to identify a significant

relationship between unemployment rate and inflation rates.

Furthermore, Faridul Islam et al. (2003) examined the hypothesis of

Philips curve through US economic data from 1950 to 1999. They found

out a weak long-run co-integrating relationship and long-run causality

between unemployment and inflation. They argued that “the U.S

stabilization policy should still be able to exploit the trade-off

relationship between the unemployment rate and the inflation rates”.

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However, Hart (2003) tested the Phillips hypothesis by employing

the hourly wage earning. He concluded that during the inter-war period

(1926-66) in Britain, the Phillips curve was “not supported by our data”.

Keshab .R. Bhattarai (University of Hull, 2004), carried out a

research on OECD economies using a paneled data and found out that

the Phillips curve phenomenon is empirically significant in countries

such as Britain, Denmark, Italy, Norway, Netherlands, New Zealand

and the USA.

Onwioduokit (2006) investigated the relationship between

unemployment and inflation in Nigeria and found that there is a

negative relationship between unemployment and inflation with the

coefficient of -0.412, this validates the Phillips hypotheses; however, the

results of the causality test indicated no causality between

unemployment and inflation in Nigeria.

Fumitaka Furuoka (2007), applied the Vector Error Correction

Model (VECM) analysis to test the existence of the Phillips curve in

Malaysia for the period from 1973-2004. The findings confirmed the

Phillips‟ theory. The research showed that there existed the co-

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integrating relationship- as well as causal relationship- between

unemployment and inflation in Malaysia.

Still on the relationship between unemployment and inflation,

Studies by Aminu and Anono (2012), using the Augmented Dickey-

Fuller technique, revealed that there is no causation between

unemployment and inflation and that a long-term relationship exist

between the two. Also, the study revealed a negative relationship

between unemployment and inflation and a minimal applicability of

various theories of unemployment and inflation in Nigeria.

Chukwudi (2012), in his studies on the impact of unemployment on

economic growth, found that for GDP to grow, unemployment and

inflation must be reduced. This entails employment of material and

human resources in the production process. Also, it may not achieve the

desired result if government expenditure is not adjusted as well.

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2.3 LIMITATION OF THE PREVIOUS STUDIES:

Although a good deal of research work has been carried out on

unemployment and inflation worldwide, not much has been carried out

using the Nigerian economy as a case study. When the time period is

being considered, this work will serve as one of the most recent research

works on the topic.

Most researchers have supported the existence of a Phillip curve in

their respective countries, while others have stated otherwise. This

research work tends to add to the literature covering unemployment

and inflation in Nigeria.

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CHAPTER III

RESEARCH METHODOLOGY

3.1 MODEL SPECIFICATION:

A model is an abstraction from reality. It is an abstraction from

reality because; it is very difficult to carry out a research using all the

factors that exist in a real life situation. The usefulness of model

building in economics is to simplify the complexities of real life.

Koutsoyiannis (1977:12) opines that in attempting to study any

relationship between variables, it is very important to express the

relationship in mathematical form which is to specify the model with

which the economic phenomenon will be explored empirically.

In an attempt to explore empirically on the relationship between

unemployment and inflation in Nigeria, a model will be employed. In

the model, inflation, Gross Domestic Product (GDP), interest rate, and

government expenditure will be regressed on unemployment; in order to

ascertain the impact of the explanatory variables on the explained

variable.

From the foregoing analysis, the model can be written in its

functional form as follows;

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UNEMP = f (INF, GEXP, INTR, GDP)

Where:

UNEMP = Unemployment Rate.

INF = Inflation Rate.

GEXP = Government Expenditure.

INTR = Interest Rates.

GDP = Gross Domestic Product

f = Functional relationship

Expanding the model into a linear mathematical relationship, we

have;

UNEMP = ao + a1INF+ a2GEXP+ a3INTR+ a4GDP

However, our econometric model is yet to complete. We complete the

econometric model by including the stochastic term (e t). Thus our model

becomes;

UNEMP = ao + a1INF+ a2GEXP + a3INTR + a4GDP + et

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Where:

a0 is the intercept depicting unemployment when the explanatory

variables are equal to zero.

a1, a2, a3, a4 are the coefficients or parameters attached to the

explanatory variables. The inclusion of the stochastic or error term (et)

in the above model is to capture the impact of other variables that are

not included in the models.

3.2 EVALUATION METHOD

Three criteria are adopted in order to evaluate the result obtained

from the regression analysis. They are;

i. Evaluation based on economic a priori conditions or criteria,

ii. Evaluation based on statistical criteria.

Evaluation Based on the Economic a priori Criteria

This subsection of this chapter draws inference from economic

theory. This is used to examine the economic usefulness of the equation

with regards to meeting the a priori expected signs of the parameters.

The sign „„–‟‟ indicates that the explanatory variable has an inverse

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relationship with the explained variable, while the sign “+” indicates

that the explanatory variable has a positive relationship with the

explained variable. The theoretical a priori expected signs of the

macroeconomic variables in the model are stated below.

a1 which is the coefficient of inflation is expected to be negative. This

is because a reduction in inflation leads to an increase in

unemployment.

a2 is expected to be negative, because an increase in government

expenditure will cause unemployment to reduce, through the

establishment of job-creating industries.

a3 is expected to be positive, because as interest rate increases, so

does unemployment increase. This is because an increase in interest

rate will reduce job creating investments (i.e. investment in the real

sector of the economy), thus leading to an increase in unemployment.

a4 which is the coefficient of the Gross Domestic Product, is expected

to be negative. In that, an increase in a country‟s GDP will cause

unemployment to reduce. This is true because when GDP increases, the

economy has enough money to establish job-creating industries.

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In this model, the economic a priori criteria can be summarized in

the table below.

Table 3.1: Economic a priori expectations for the model

Inflation Rate (INF) -

Government Expenditure (GEXP) -

Interest Rate (INTR) +

Gross Domestic Product (GDP) -

Evaluation Based on Statistical Criteria (1ST ORDER TEST)

1. The R2 (coefficient of determination):

The R2 shows the goodness of fit of the regression. It shows how well

or to what extent does the explanatory variables (regressors) explains

the explained variable (regressand).

2. The t–test (Student t):

The t–test shows the individual impact of the independent variables

and its usefulness to the model. A two–tailed test is conducted at 5%

level of significance, under n–k degrees of freedom. Where n is the

number of observations and k is the number of samples.

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Decision rule:

The null hypothesis:

H0: β1: α1 ≠ 0

If tcal > t0.025

Reject the null hypothesis H0 on the ground that it is insignificant

and accept the alternative hypothesis (H1). Otherwise accept the null

hypothesis (H0).

From the above, tcal is the computed t–ratio, while t0.025 is the

tabulated t–ratio.

3. The F–test:

The F–test is used to test the overall significance of the regression

model. It will also be carried out at 5% level of significance

Decision rule:

H0: The regression parameters are equal to zero (wrong model

specification).

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H1: The regression parameters are statistically different from zero

(correct model specification).

If Fcal > F0.05,

Reject the null hypothesis (H0) and accept the alternative (H1) on

the ground that the result is significant. Otherwise, accept the null

hypothesis (H0).

Evaluation Based on Econometric Criteria (2ND ORDER TEST)

1. Autocorrelation Test

Fundamentally, autocorrelation is based principally on the

fourth assumption of the ordinary least square regression analysis.

The assumption is that the successive values of the random

variable ‘et’ are temporally not dependent on their preceding values.

The Durbin–Watson d–statistic will be used to test the

randomness of the residuals or more specifically for testing the

presence of autocorrelation in the error term (et).

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Table 3.2: Decision rule

Null hypothesis (H0) Decision If

No positive autocorrelation Reject 0 < d* < dL

No positive autocorrelation No decision dL ≤ d* ≤ dU

No negative correlation Reject 4 – d L < d* < 4

No negative correlation No decision 4 – dU ≤ d* ≤ 4 – dL

No autocorrelation, positive or negative Do not reject dU < d* < 4 – dU

Where:

d* = Computed Durbin-Watson d–statistics.

dL = Lower bound

dU = Upper bound

2. Multicollinearity Test:

Multicollinearity is the situation in which there exists linear

relationship or near linear relationship among explanatory variables

in a regression model. The correlation matrix will be used to test if

the explanatory variable is highly correlated.

Multicollinearity is a problem which arises in multiple

regressions, when the explanatory variable is not itself independent.

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It makes it impossible to fit significant coefficient to explanatory

variables, which are related to one another.

Decision rule:

The correlation matrix is used to test for the presence of

multicollinearity in the model. If a pair-wise correlation is in excess

of 0.8, then multicollinearity is present.

3. Normality Test:

The normality test adopted is the Jarque–Bera (JB) Test of

normality. Thus JB test for normality is an asymptotic or large

samples and it is based on the OLS residuals. This test computes

the skewness of the OLS residuals and it follows the chi-square

distribution.

Hypothesis:

H0: σ1 = 0 (the error term are normally distributed).

H1: σ1 ≠ 0 (the error term are not normally distributed).

The decision rule is to reject Ho if χ2cal > it’s critical value at 2

degrees of freedom and accept H1 and reject if Ho otherwise.

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4. Heteroscedasticity Test:

This test is geared towards ascertaining the nature of variance of

the error term. That is, it helps to detect if the variance error term is

constant. Homoscedasticity shows equal spread or equal variance, while

Heteroscedasticity shows an unequal spread or an unequal variance.

H0: Homoscedasticity

H1: Heteroscedasticity

The decision rule is to reject H0 if χ2cal > χ20.05 and accept if

otherwise.

3.3 JUSTIFICATION OF THE MODEL:

The procedure for estimation adopted for this study is the Classical

Linear Regression Model and using Ordinary Least Square (OLS) as an

estimator. The method of the ordinary least square method is attributed

to Carl Friedrich Gauss, a German mathematician. The method is most

preferred because it is easy to understand, simple in its computational

procedure and parameter estimation. It also possesses the properties of

Best Linear Unbiased Estimator (BLUE), which are consistent and

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sufficient. The regression will be carried out using the P.C give 8.0

regression package.

3.4 SOURCES OF DATA:

The data employed in this research are secondary data obtained

from the central bank of Nigeria‟s statistical bulletin of 2010. The

figures for 2011 were gotten from the internet and other viable sources.

The data used in this study are mainly nominal. The period covered is

from 1986-2011, a period of twenty-five years (25 years).

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CHAPTER IV

PRESENTATION OF RESULT AND DATA ANALYSIS

4.1 PRESENTATION OF REGRESSION RESULT:

The regression result of the data used in the analysis is presented

below, which is in accordance with the model specified in the previous

chapter.

Table 4.1: Regression result for the model (Modeling UMP by OLS)

Variable Coefficient Std. Error t-value t-prob partR2

Constant 4.0175 3.7689 1.066 0.2985 0.0513

INTR 0.16628 0.18713 0.889 0.3843 0.0362

GDP -3.2956e-008 1.6856e-007 -0.196 0.8469 0.0018

INF -0.091820 0.042007 -2.186 0.0403 0.1853

GEXP 4.3061e-006 1.3917e-006 3.094 0.0055 0.3131

R2 = 0.771086 F (4, 21) = 17.684 [0.0000] DW = 0.955

4.2 RESULT INTERPRETATION

4.2.1 ANALYSIS OF THE REGRESSION COEFFICIENTS:

The intercept of unemployment when all explanatory variables are

held constant is 4.0175.

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The coefficient of interest rate shows that, with a unit increase in the

interest rate, unemployment will increase by 0.16628.

The coefficient of Gross Domestic Product, tells us that when there

is a unit increase in the GDP, unemployment will decrease by 3.2956.

The coefficient of inflation shows that, with a unit increase in the

explanatory variable INF, unemployment will decrease by 0.091820.

Also, the coefficient of Government Expenditure helps us to

understand that, a unit increase in GEXP will result to an increase in

unemployment by 4.3061.

4.2.2 ECONOMIC A PRIORI CONDITION:

This section compares the regression results with the a priori
expectation, to see if the results gotten conform to economic theory.
Table 4.2: Economic a priori test for the model:

Independent variables Expected Observed Remark.

signs signs
Interest rate (INTR) + + Conforms
Gross Domestic Product - - Conforms
(GDP)
Government - + Does not
Expenditure (GEXP) conform
Inflation Rate (INF) - - Conforms

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From table 4.2 above, government expenditure did not conform to

economic theory- which states that an increase in government

expenditure will increase employment, thereby decreasing the

unemployment rate in the country. This variation from economic theory

occurred because, in Nigeria must of the expenditures made by the

government are not directed towards the real sector of the economy.

Expenditure in the sector of the economy expands the industrial sector,

increasing its capacity to absorb more labour, thereby increasing

employment.

Thus, this result shows that government expenditure has no reducing

effect on the unemployment rate in Nigeria.

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4.2.3 STATISTICAL CRITERIA

1. The R2 (Coefficient of determination):

The R2 of the model is 0.771086, showing that the explanatory

variables (or independent variables) explains about 77.1% of the

explained variable (dependent variable).

2. The t-test (Student t):

To recall, the t–test is used to test if the independent variables are

individually statistically significant to the dependent variable. Under n

– k degrees of freedom at 5% level of significance, the critical value is

±2.080. Thus we reject H0 that the variable is statistically significant if

tcal > ttab in absolute values (that is, ignoring negative values) and accept

it if otherwise.

Table 4.3: T–test for the model

Variables t-value 5% critical value Decision

Constant 1.066 ±2.080 Not statistically significant

INTR 0.889 ±2.080 Not statistically significant

GDP -0.196 ±2.080 Not statistically significant

INF -2.186 ±2.080 Statistically significant

GEXP 3.094 ±2.080 Statistically significant

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HYPOTHESIS TESTING:
1. H0: There is no trade-off relationship between unemployment

and inflation in Nigeria.

2. H0: Government expenditure has no impact on unemployment in

Nigeria.

3. H0: Gross domestic product has no significant impact on

unemployment in Nigeria.

CONCLUSION: From the regression result, the coefficient of inflation

is negative, thus, showing that a trade-off relationship exists between

unemployment and inflation. Also, inflation and government

expenditure was found to be statistically significant, while gross

domestic product was found to be statistically insignificant. Therefore,

we conclude by saying;

There is a trade-off relationship between unemployment and

inflation in Nigeria.

Government expenditure has a significant impact on

unemployment in Nigeria.

Gross domestic product has no significant impact on

unemployment in Nigeria.

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3. F-test:

This shows the overall performance of the regression model. The

decision rule as stated previously is to reject H0 that the model is well

specified and adequate for forecasting and policy analysis if Fcal > F0.05

and accept it if otherwise.

Table 4.4: F–test for the model:

Fcal Ftab at 0.05 significant level Decision

17.684 2.8401 Reject H0 and accept H1

From table 4.4 above, the result shows that the model is well

specified and considered as being good and adequate for forecasting and

policy analysis. It further states that the overall regression is

significant and statistically different from zero.

4.2.4 ECONOMETRIC CRITERIA (SECOND-ORDER TEST):

1. Autocorrelation Test:
The Durbin-Watson d-statistic will be used to test if autocorrelation

is present in the error term (ei).

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Decision rule:
Null hypothesis (H0) Decision If

No positive autocorrelation Reject 0 < d* < dL

No positive autocorrelation No decision dL ≤ d* ≤ dU

No negative correlation Reject 4 – d L < d* < 4

No negative correlation No decision 4 – dU ≤ d* ≤ 4 – dL

No autocorrelation, positive or Do not reject dU < d* < 4 – dU

negative

In this model, the Durbin–Watson d–statistics calculated value and

critical values at the 0.05 level of significance are given below.

d* =0.955 dL =1.062 dU= 1.759

Therefore, 0 ≤ d*≤ dL i.e. 0 ≤ 0.955 ≤ 1.062, we conclude that there is

positive serial correlation in the residuals, and thus, rejecting the null

hypothesis.

2. Multicollinearity Test:

The correlation matrix will be used to test for the presence of

multicollinearity in the model.

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Table 4.5: Correlation Matrix

UMP INTR GDP INF GEXP
UMP 1.000
INTR -0.2106 1.000
GDP 0.7679 -0.2274 1.000
INF -0.5192 0.3479 -0.3411 1.000
GEXP 0.8471 -0.2836 0.9151 -0.3823 1.000

From the correlation matrix in table 4.5 above, 0.8471 is the correlation

between UMP and GEXP, while 0.9151 is the correlation between

GEXP and GDP. As we can see, the two pair-wise correlations are above

0.8, thus suggesting the presence of multicollinearity between them.

3. Normality Test:

The normality test adopted is the Jarque – Bera (JB) Test of normality.

This test computes the skewness of the OLS residuals and it follows the

chi-square distribution.

Hypothesis

H0: σ1 = 0 (the residuals in the error term are normally distributed).

H1: σ1 ≠ 0 (the residuals in the error term are not normally distributed).

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Decision rule: reject Ho if χ2cal > it‟s critical value, (at 2df) and accept H1

and reject if otherwise.

The X2cal = 4.3289, while the X2tab = 5.99

Since, X2cal < X2tab under 0.05 significant level, we therefore accept the

null hypothesis and conclude that the residuals in the error term are

normally distributed.

4. Heteroscedasticity Test:

This test is geared towards ascertaining the nature of variance of the

error term. That is, it helps to detect if the variance error term is

constant. Homoscedasticity shows equal spread or equal variance, while

heteroscedasticity shows an unequal spread or an unequal variance.

H0: Homoscedasticity

H1: Heteroscedasticity

The decision rule is to reject H0 if χ2cal > χ20.05 and accept if otherwise.

X2cal = 10.344 @ 8 degrees of freedom.

X2tab = 15.5 @ 0.05 significance level.

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Since X2cal < X2tab, we accept the null hypothesis concluding that the

conditional variance of the error term is equal.

4.3 Policy implication:

The findings of this research work confirm the existence of the trade-off

relationship between unemployment and inflation in Nigeria.

Therefore, policy makers should exercise caution when implementing

policies that will reduce unemployment Nigeria, because a decrease in

unemployment rate could make inflation to rise.

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CHAPTER V

SUMMARY OF FINDINGS, CONCLUSION, AND

POLICY RECOMMENDATIONS

5.1 SUMMARY OF FINDINGS:

The research work is centered on unemployment and inflation in

Nigeria. Its main objective was to ascertain if the trade-off thesis holds

in Nigeria. To achieve this, various data on unemployment and inflation

were collected from 1986-2011, also other variables such as government

expenditure, interest rates, and the gross domestic product were

included. These variables were then subjected to multiple regression

analysis, using OLS estimator, with unemployment as its dependent

variable. The summary of the findings are given below;

 Inflation was found to conform to the a priori expectation, by

having a negative sign. Its significance test revealed that inflation

has a significant impact on unemployment in Nigeria.

 Interest rate and gross domestic product conformed to the a priori

expectation, by having positive and negative signs, respectively.

Furthermore, the result also revealed that both variables have no

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significant impact on unemployment, when they were subjected to

the individual significance test.

 Government expenditure on the other hand, did not conform to the

a priori expected sign. When subjected to the individual

significance test, it was found that it has a significant impact on

unemployment.

 The goodness of fit test revealed that inflation, government

expenditure, interest rate, and gross domestic product explain

77.1% of the dependent variable (unemployment), which is a good

sign.

 Also, the general significance of the model, using the F-test,

showed that the model is good and could be used for forecasting.

5.2 CONCLUSION:

Unemployment and inflation poses a serious problem in any

economy. Studies carried out by most economists revealed that in the

quest to reduce unemployment, rising inflation may be risked. A. W.

Phillips‟ research work (1958) attested to this fact of trade-off

relationship. However, some other economists led by Milton Friedman

challenged the trade-off relationship thesis, saying that it existed only

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in the short-run, that in the long-run, the Phillips curve is vertical

without any sign of trade-off relationship. Friedman used the term

„natural rate of unemployment‟ in his analysis to denote the rate at

which the actual rate of inflation equals the expected rate of inflation.

The researcher in other to validate the existence of a Phillips curve

carried out various tests, using the Nigerian economy as a case study.

The result of the test revealed that unemployment and inflation are

inversely related, thus confirming the existence of the Phillips curve in

Nigeria, with inflation having a significant impact on unemployment in

Nigeria.

5.3 POLICY RECOMMENDATIONS:

The trade-off relationship between unemployment and in inflation

poses a dilemma for our policy formulators, since in order to reduce

unemployment, the inflation rate in the economy tends to rise. Thus, of

great importance is the need for constructive and well-specified policy

recommendations that will help to ameliorate the situation of

unemployment and inflation in Nigeria. Below are some policy

prescriptions, which will help alleviate the current problems of

unemployment and inflation in Nigeria.

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1. Government should strive to develop the agricultural sector which

has great potentials to increase the supply of farm products and

other basic necessities of life. The increased supply will reduce

prices and increase in employment generation. To achieve this,

various specific agricultural policy measures should be promoted

and pursued vigorously.

2. Massive investments should be carried out in the real sector of the

economy, by establishing job-creating industries, which will help

to reduce the level of unemployment in the country, increase

output, reduce prices of goods and services, and thus, reducing the

level of inflation in the economy.

3. The free flow of information between employers and employees

should be enhanced, through the reduction in the cost of job or

employee search by means of job data banks, thus resulting to

increased efficiency in the labour market. Similarly, training and

educational programmes should be increased and geared towards

innovations and productivity, thereby, reducing the rate of

unemployment in the economy.

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4. It is also recommended strongly that special attention be given to

policy implementation. In this regard, the government should set

up a policy implementation body or committee in the presidency

for the purpose of monitoring government policies and ensuring

that they are implemented according to prescriptions.

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BIBLIOGRAPHY

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Anthony, De Mello. (1992). Awareness; A De Mello Spirituality Conference in His

Own Words. New York: Doubleday.

Awoke, M.U. (2001). Econometrics: Theory & Application. Abakaliki: WillyRose &
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