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Inefficiency in Nigeria’s Labor Market

Labor and capital are the major input determinants of production in the economy. A high rate of Gross Domestic Product (GDP) may translate in to high employment since labor is a key determinant of production. However, the combination of different factors of production is largely influenced by the government rules and the overall external environment of the market. Therefore, government laws and external economic conditions determine the entry and exit conditions of key participants in the market such as employees. Further, corporations use the external conditions and legal restrictions to make decisions regarding their labor supply.

Nigeria’s economic condition shows that the country’s economic growth in per capita income has remained sluggish over the past decade. The country has achieved tremendous economic growth in last decade recording a 6.2 % increase in the Gross Domestic Product. However, the improvement in the gross domestic product was neutralized by the increase in population growth, reducing the level of per capita income. According to the Nigeria’s Second National Economic Empowering and Development Strategy, the country recorded a 2.4% population growth from 1999-2003 (Chuku 2015, pg 114). Moreover, the gross domestic product increased by 3.3% in the same period. This led to a 0.9% increase in the per capita income. The poor economic growth trends in Nigeria have caused negative developmental changes in the country’s economy. This has led to reduced investment levels, reduced per capita income, and increased unemployment in the country.

The slow level of economic growth in Nigeria has reduced the capacity of the country to expand its employment potential, improve per capita income, and reduce poverty. Economical conditions have led to increased instability in the country’s labor market. For instance, Nigeria’s economy experienced frequent shocks in oil prices, which affected the country’s currency leading to the disruption of major economic policies. This has caused increased level of instability in the country’s labor market. For example, the labor market shifted from the agricultural sector to the oil sector because of the oil boom. However, the dynamic changes of oil prices in the global market have led to devastating effects of the demand for labor supply in the oil production market.

Current Condition of the Nigeria’s Labor Market

Agriculture is one of the leading employment sectors in the country. According to statistics, the country has 40% of its arable land used for agricultural purposes (Yelwa, David, & Awe 2015, p.316). Further, the country has improved its level of education with more than 100 institutions, which produce over 200,000 graduates each year. Therefore, the level of skilled labor has improved because of the high graduate level. The country also has huge amounts of solid minerals that are still untapped. This creates an economic growth potential for the country. Moreover, more than five million Nigerians live in foreign countries. Most of the Nigerians living in foreign countries have professional careers and this contributes to the level of foreign direct investments in the country. However, the level of economic growth has not reduced the level of unemployment and it has failed to stimulate high investments in the country. Thus, the main objective of this research is to evaluate why the demand for labor in Nigeria has not matched with the growth of the labor force in the country.

Arising Issues in Nigeria’s Labor Market

Nigeria’s economy has shown redundancy in the level of labor utilization. This has widely affected the slow level of economic growth in the country. In addition, this trend has led to the increased poverty vicious cycle in the country. According to Nigeria’s economic trends, economic shocks affect the formal and informal sector in the country’s labor market (Tule, Ajilore, & Ebuh 2015, p.162). It is important to analyze the macroeconomic factors that determine the level of entry and exit in Nigeria’s labor market. The country shows negative trends in the labor market such as inequality and discrimination in the labor markets. Further, macroeconomic policies have failed to attain positive changes in labor market outcomes.

Market Entry and Exit in the Labor Market

Nigeria’s economy is experiencing a decline in the employment coefficient. This is because economic growth does not lead to employment growth in the country. For instance, despite the increase in the gross domestic product in the last decade, the formal sector labor employment has fallen rapidly. Labor is divided into three categories in the country namely; the formal sector, informal sector, and rural sector. In order to understand the efficiency of labor markets in Nigeria, it is important to evaluate the different categories of labor markets in the country. The rural labor sector consists of self-employed workers and people who rely of subsidence farming. Further, the informal labor sector comprises of small enterprises that are privately owned. These small private enterprises require unskilled labor without employment contracts. Further, the formal sector consists of large corporations that hire skilled and unskilled workers using formal contracts. The formal labor sector considers labor regulations required by the countries laws and regulations.

Inequality in the Labor Market

The division of the country’s labor sector into different sectors leads to variation in the level of employment and remuneration among workers. Workers with the same skills and performance receive different wages depending of their labor sector. This has led to negative macroeconomic trends such as rural to urban migration. For instance, there is an increased level of rural to urban migration despite the increased level of unemployment in the urban sector. Increased rural to urban migration is caused by the expectation of higher wages in the urban labor sectors than the rural labor sector. However, the migration of workers from the rural labor sector to the urban labor sector leads to disequilibrium in the labor supply. The increase in labor supply in the urban sector increases the urban wage compared to the rural wage (Yelwa, David & Awe 2015, p.213).

Public sector policies such as recruitment rates also influence the growth of the informal sector. If the public sector reduces the level of recruitment, then the employment in the informal sector increases. Further, the imposition of labor regulations and increased performance of labor unions have led to the reduction of employment growth in the urban labor sector. For instance, the setting of minimum wage in Nigeria has led to reduced level of employment because of high wages. Further, the demand for unskilled labor has reduced and the skilled labor market is growing at a slow rate. This has led to high levels of unemployment in the urban labor sector.

University Graduate Unemployment

One of the major causes of distortions in the labor market in Nigeria is the rise of graduate unemployment. There is a rising trend of unemployment for professionals such as engineers and accountants. Employment generation remains a major problem in the country over the last two decades. The volatility of unemployment among graduates is high despite increased specialization and demand for skilled labor in production (Orji, Anthony-Orji, & Okafor 2015). This is attributed to the existence of rigid labor market institutions and legal regulations that increase the cost of labor. Consequently, failure of economic policies to influence employment and economic integration of different labor sectors has led to increased graduate unemployment.

Unemployment occurs when people are willing to work at the current wage rate but there are no job opportunities. The urban formal sector has suffered from the effects of trade union strengths. The success of trade unions has raised the wage rate in the formal sector. Therefore, this has led to firms reducing their rate of employment to meet the rising input costs. The informal sector offers little wages because there are little or no labor regulations. However, graduates are not willing to work under the formal market wage rate. This makes the transition of skilled labor from the formal market to the informal market redundant.

Inflation

The rising economical inflations caused by economic and political trends have led to the instability of labor markets in Nigeria. Economic trends such as rise in balance of payments and political events such as terrorism have affected the labor market negatively. The last decade encountered numerous economic shocks that led to rise in the consumer price index (CPI) in Nigeria (Ogunyomi & Bruning 2015, p.139). The rise in commodity prices leads to a demand for higher wages to meet the rising prices. Higher wages lead to reduced demand for labor by firms. This then leads to increased unemployment, and more workers lose their jobs in the process.

Political events have led to a low level of investments in the country. Increased labor regulations have reduced the level of demand for investments in Nigeria. Further, the political events such as terrorism have led to reduced economic performance in the country. For instance, Boko Haram have caused major devastations in Nigeria. The terror group has led to loss of lives and loss of property in the country. The security threats in the country posed by terrorists have lead to reduced demand for investments in the country. This has led to reduced competition, which leads to rise in commodity prices. Further, the political insecurity condition of the country has slowed down the rate of economic growth in the country, despite the rise in population growth. This leads to excess supply of labor than the current market demand.

Remedy to the Labor Market Inefficiency

Labor Market Institutions

Labor market institutions play a major role in ensuring there is efficiency in the labor market. These labor market institutions acquire relevant data of the labor market to help them understand the current market conditions or trends. However, the accuracy of the data used in making policies remains inadequate. Labor market institutions are able to understand market conditions such as labor demand, labor supply and intervention strategies in the labor market.

The National Bureau of Statistics in Nigeria (NBS) disclosed that the country’s unemployment rate rose from 7.5% to 8.2% in the second quarter of 2015. Further, the labor force increased by 0.81% in the second quarter of 2015 economic year (Olotu, Salami, & Akeremale 2015). Labor market institutions help address labor demand by improving the level of employment in the public sector and promoting investments in the public sector through enactment of effective economic policies. For example, trade unions may create lengthy legal process for firing employees. This would help the country accommodate the increased work force even in periods of economic shock. Further, labor market institutions can also help improve the level of labor supply by improving the level of education and entrepreneurship among the youth. Moreover, labor markets help in market intervention by balancing the level of labor demand and labor supply in the market.

Regional Economic Integration

Regional economic integration helps in improving the mobility of resources between neighboring countries. Nigeria is burdened by high levels of poverty, weak human capital development, and infrastructure. Regional economical integration would help increase the level of economic growth in Nigeria by expanding the country’s market, pooling of resources, efficient resource allocation, and reduced investment risk.

Regional economic integration helps developing countries increase their economical performance in the global market. There level of regional economic integration in West Africa is on the rise. The European Union is one of the successful regional integration unions in the world. The European Union (EU) recently entered into a partnership with West African nations. This led to the creating of the EU-West Africa trade agreement partnership in 2015 (Felix & Emmanuel 2015, p.137). Further, Economic Community of West African States (ECOWAS) in another regional integration trade agreement that has led to regional development.

Labor Market Flexibility

The development of labor market institutions helps in explaining different levels of unemployment. Unemployment may occur because of various factors such as lack of proper qualification, over qualification or current economic conditions. Labor market institutions help gather relevant data on changes in different types of unemployment (Felix & Emmanuel 2015, p.104). However, the effectiveness of labor market institutions has been achieved in the last decade. Therefore, there is lack of sufficient information required to create long-term policies in the Nigerian economy.
Market flexibility should be used to reduce the disparity between the formal and informal labor sector in Nigeria. Fixed wage regulations are responsible for the high level of unemployment both in the formal and informal sector. Labor market flexibility is achieved when measures that promote wage flexibility are put in to place. Thus, indexing practices should be put in place to regulate monetary shocks in the economy.

Improvement in Women Education

Women have remained uneducated because of gender inequality if Africa. Nigeria is an example of countries where the level of gender bias in education and employment is high. The enrollment of women in education has improved after the implementation of policies that help women get education without gender discrimination. Moreover, increased women education has improved the overall economic performance of women. This has reduced the level of women dependence on their husbands, which was a major cause of the vicious poverty cycle in Nigeria (Adeolu 2015, p.94). Women’s participation in the wage labor market also improves the quality of life since women play a major role in raising children. According to research statistics, educated women are more likely to educate their children compared to uneducated women.

Summary

Unemployment in Nigeria has affected the youth vastly. Youths are considered unemployed if they are available and willing to work. Further, youths are considered unemployed if they are looking for job opportunities. People aged from 15 to 64 are considered as economically active. The Nigerian government has introduced various economic policies in history to address the problem of unemployment among the youth. During the military rule in Nigeria, there were effective policies that aimed at improving the level of unemployment. For instance, the military government created youth programs such as Operation Feed the Nation (OFN) and Road and Rural Infrastructure. These programs helped create agricultural jobs for youths mostly in the informal sector.

However, in 1999 the transition of the Nigerian government to civilian rule led to major changes in youth programs that were aimed at reducing the level of unemployment (Chuku 2015, p.103). The civilian rule led to creation of other programs such as the Subsidy Reinvestment and Empowering Program (SURE-P). The Nigerian government introduced the SURE-P in 2012 (Omoruyi 2015, p.29). The program aims at reinvesting and managing government savings that were derived from the subsidy removal on petroleum products. The project also aimed at improving the level of skilled labor employment for graduate institutions. Consequently, the program offered different schemes for the youth such as the Community Service Scheme, Women and Youth Empowerment Scheme and Graduate Internship Scheme.

One of the major problems affecting graduate unemployment in Nigeria is the poor quality of education. The global demand for skilled labor calls for effective education programs that are updated to enable the youth attain the required market skills. Most graduates remain unemployed because they cannot meet the required skill and knowledge. The Graduate Internship Scheme is one of the most successful programs implemented by the Nigerian government. The program provides graduates with the opportunity to access internship in different firms according to their preference. These firms are registered with the Nigerian Corporate Affairs Commission. Graduates are engaged in training and mentorship programs that help them develop the right professional skills required in the job market. Further, these graduates are assessed to examine the level of mentorship success.

Developing countries are faced with the increasing level of employment caused by unplanned population growth. Nigeria is one of the countries faced with high population growth beyond its economical potential. This has led to a slowed per capita income improvement despite the country achieving higher levels of economic growth. Family planning is one of the major government policies that help educate the public regarding reproduction. Further, the access to education has improved vastly reducing illiteracy levels. Positive measures such as women education and mentorship programs have improved the economic participation of women in the country’s economy.

Conclusion

Economic integration and trade agreements have favored employment by increasing the investment level in the region. Consequently, macroeconomic policies have also provided ways of expanding the economy to accommodate the increasing labor workforce. Entrepreneurship programs are also available for youths mostly in the informal sector to help them improve their economic capacity through self-employment. The creation of African Union (AU) has helped cohesion and economic progress among African countries. The African Union provides information and economic policies that help reduce poverty level in the African continent. In addition, the World Bank also provides funds for developing countries to improve their economic potential. These funds are used to develop infrastructure, fund government programs, and improve the quality of key government sectors. There are new arising issues in unemployment such as underemployment. Labor market flexibility has led to low levels of unemployment, which provide workers with hourly wages. Thus, when firms want to reduce labor costs, they reduce the level of working hours. This has led to new unemployment trends such as underemployment where workers are hired but their labor is not utilized.

References

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