Inefficiency in Nigerias Labor Market

2021-05-13 21:35:44
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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.

Nigerias economic condition shows that the countrys 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 Nigerias 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 countrys 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 countrys labor market. For instance, Nigerias economy experienced frequent shocks in oil prices, which affected the countrys currency leading to the disruption of major economic policies. This has caused increased level of instability in the countrys 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 Nigerias 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 Nigerias Labor Market

Nigerias 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 Nigerias economic trends, economic shocks affect the formal and informal sector in the countrys 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 Nigerias 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

Nigerias 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 countrys 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 countrys 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 countrys market, pooling of resources, efficient resource allocation, and reduced investment risk.

Regional economic integration helps developing countries increase th...

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