Wednesday, 6 October 2010



Like many of the problems we face in Nigeria, unemployment is a social, political and economic issue. While it is possible to look at it from any of these angles, it is easiest to examine it from an economic standpoint as it is this way that the social and political ramifications become evident.

The scope of unemployment in Nigeria

Simply speaking the rate of unemployment is the percentage of the work force that is without a job. The official statistics for unemployment measure the percentage of the population of working age (16-64) that are not in work but are looking. Surprisingly, in 2007 this rate was 4.9% which automatically seems inconsistent with the actual work situation in the nation. The low rate exposes a problem with this measurement which ignores forms of hidden unemployment and underemployment. It tends to ignore full time housewives who would be economically active; it ignores people outside the official working age (especially those under the age of 15); it ignores the unpaid family and domestic workers; it ignores the underemployment in the agricultural sector and in the taxi/ ‘okada’ industry. The list goes on and in Nigeria, where woman and young people are at a disadvantage when it comes to finding formal employment, the future appears perilous because as the young population increases and the difference between levels of male and female employment reduces, the number of unemployed will swell.

Consistent with this, the Federal Government in 2009 admitted that the true unemployment rate was as much as 28% with as many as 40 million people unemployed in Nigeria. This is not to suggest that the government is deliberately misinforming people, but it is evident that the current system of measuring unemployment is not fit for purpose in the Nigerian context. Nigerians would certainly find it hard to believe that only 1 in 20 people is unemployed.

The causes of unemployment in Nigeria

Unemployment may seem an emotive and complex subject, but in basic terms, the number of unemployed is simply the difference between the number of people willing to work and the number of jobs available. In supply and demand terms, this translates to the difference between the SUPPLY OF LABOUR and DEMAND FOR LABOUR. The underlying problem of unemployment is that the supply of labour is greater than the demand for labour. The question to be addressed therefore is simply why is the supply for labour so high and the demand for labour so low?

The high supply for labour

There are two factors which are positively correlated to the supply of labour:

I. The size of the working age population.

The present population of Nigeria is roughly 150 million people (with 40% of the population under the age of 15). Compared with 100 million in 1990, the current annual population growth rate is 2-3% and this will undoubtedly increase in the future. By 2050, the population is expected to be between 250 and 290 million. This massive population growth has already and will continue to increase the size of the labour force. Longer life expectancy and greater female involvement in the labour force will also increase the supply of labour.

II. The willingness of the working age population to participate in the labour market.

Poverty greatly affects willingness to work. The absence of a welfare system or social safety net and low levels of development mean that many people work on a subsistence level. At the extremes of poverty, no choice exists regarding whether to work or not; it is a necessity for survival. At such poverty levels, the options are either work, beg or die.

Also increasing the willingness to work is the increase in the number of formally educated individuals. Education itself and its cost means that educated are likely to demonstrate a willingness to work. Despite failings in the education sector, the enrolment and graduation rates in Nigeria are on the rise.

The relative improvements of transport, information and communication systems have improved the flexibility of the labour force which in turn increases the supply of labour.

The low demand for labour

It does seem like an absurd criticism to make, that the supply of labour is too great. One would expect that in such a vibrant economy, growth of the labour force would be welcomed and put to strategic use as we have seen with relative success in India and China. The problem cannot be viewed as the abundance of labour; rather, the problem is the low demand for labour. This seems intuitive as public consensus is that there are too few jobs available. So why after a decade of reasonably high economic growth has there been no real improvement in employment. This question of low job creation in Nigeria is multifaceted and very often contentious. As with most things though, it is a result of a number of factors.

One possible reason is that GDP growth in the last decade wasn’t strong enough. The average growth fell below the 7% threshold which the UN argues is necessary to reduce poverty and improve living conditions. However, this is simply a guideline and Nigeria averaged 5.5% GDP growth for the period and as such, was not far off the threshold.

Perhaps more important is the nature of the growth that Nigeria experienced. The large growth in 2004-2007 was largely based on rising commodity prices, particularly that of oil, and didn’t necessarily translate into job creation. This is symptomatic of the Nigerian economy and helps to explain the low demand for labour. The major growth industries are commodity based and/or very capital intensive (i.e. they require heavy investment in machines and technology and not on labour) so the economy can continue to ‘grow’ without any real increases in the number of people employed.

On a different note, perhaps the labour being supplied is inadequate in kind or quality for employers. Many employers do not trust local education institutions for various reasons and presently school leavers may not be gaining the qualifications required by the economy. The labour market isn’t absorbing university graduates as evidenced by poor the placement and retention record of the NYSC programme. This issue constitutes a bigger problem with education in Nigeria and should be left for a separate discussion.

The trend in international politics is in favour of austerity, there is a movement towards a smaller state, both in size (the amount the government is doing/spending) and in scope (the range of activities that government takes on). In this respect, Nigeria has not been an exception. This directly results in fewer public sector jobs, with little or no plans having been made for those who were ‘retrenched’. The reduction of government spending also reduces demand in the economy which in turn has a negative effect on employment.

The manufacturing sector in the developing world is an under-utilized avenue of job creation. Through labour-intensive processes, local operators can satisfy much local demand for value products and demand for labour. Low investment and a poor business environment however, hinder the development of this sector. Erratic electricity supply represents a major cost to a manufacturer and could be the difference between profit and loss or the difference between taking on an employee or not. However, this is not the only problem, access to finance, the technology gap, poor research and development, scarcity of reliable data, poor transport systems, competition from cheap imports also hinder this sector. These are all issues in their own right but their current state compounds the problem of employment. The agricultural sector is also in need of reform as it currently employs 70% of the population but only yields 33% of GDP. But like manufacturing it is a complex topic that requires its own analysis.

The Implications of unemployment

The most direct result of unemployment is on the economy as a whole. People out of work do not contribute much to the economy, and as such, the economy performs below its optimal level. The result is slowed rates of economic growth and ultimately less development.

Unemployment also reduces the tax base of the society. This is often an underestimated problem but it manifests in two ways. Firstly, the reduced tax base means that government has fewer funds available for state projects. This results in fewer public services and lower public investment. The second problem is more subtle but no less serious: taxation is an important element of state building; people need to take a vested interest in the state so they have legitimacy and the incentive to hold their leaders to account. This is of particular pertinence to Nigeria where accountability is a big issue.

There are also wide social implications of unemployment. Some are more obvious problems and warrant their own discussion, such as crime, militancy, the black market and human capital flight (the brain drain). The effects of these problems are known by Nigerians and are felt in very real ways in day to day life. There are also social implications that we cannot yet know the full extent of. As Nigeria’s population explodes and multiplies, the real danger is for the second generation born into a society with a culture of unemployment.