Impact of Labour Market Crisis On Developing Economies; The Nigerian Experience

ABSTRACT

An active and functioning Labour market is important for economic stability and development. Hence, the importance of a stable labour market cannot be overemphasized. The Nigerian labour market has been experiencing a lot of crisis over the years, giving rise to distortions in economic activity. This study tries to investigate the impact of labour market crisis in developing economies using Nigeria as a case study covering a period twenty eight (28) years between 1980 –2007. At the end of this study, the findings show that there is a negative relationship between economic growth and labour market crisis. Based on this findings, recommendations were made to enhance proper policy intervention by government and policy makers

CHAPTER ONE

1.1 BACKGROUND OF THE STUDY

Unemployment is one of the developmental problems that faces developed and mostly developing economies of which Nigeria constitutes ²/3(two-thirds) of the population of developing countries. Most developing economies are faced with numerous labour market crises and that of Nigeria is not an exception. The Nigerian labour market problem may be characterized as one of the chronic labour market crisis with high rate of unemployment and underemployment statistics, discrimination and wage inequalities.

          The structure of most developing economies Nigeria inclusive is fundamentally characterized and entrenched in dualism. At independence in 1960, Nigeria inherited an economy that exhibited both extreme characteristics of reliability on developed economy and economic backwardness and neglect of majority of the people. The dualism had arisen from the policy of the white supremacy that underlined the colonial era. The issue of dualism originated from the imposition of the capitalist mode of production unto a non-capitalist system (Chinpanluwa and Makwarara 2002). In their words, this situation becomes self-perpetuating and concretized over time into what is currently depicted in the economy. This situation evolved from the institutionalization of the majority of the labour force before independence. The majority of the people were disentitled of their land, had restricted access to human capital development (through lack of education and training) and this brought about the built-in constraints that shaped the future development as well as labour absorptive capacity.

          Unemployment has been categorized as one of the major and serious impediment to social and economic progress. Apart from representing a colossal waste of a country’s manpower resources, it generates welfare loss in terms of lower output thereby leading to lower income and well-being (Akinbayo 1987 and Rabeen 1993)

          Unemployment is a very serious issue in Africa and particularly in Nigeria. Nigeria has a population of over 40 Million unemployed persons. Indeed, the Nigerian landscape is crawling with a rapidly mutating population of jobless able-bodied men and women who are frustrated and whose disempowerment accounts largely for the reign of cynicisms in the country and a high mortality rate. We should realize that from the onset, the unemployment problem is a political economy issue which economic reforms have failed to address and hence cannot be addressed through market forces. The Nigerian economy because of its relative diversification and level of development in the African regions have potentials for exploiting the benefits og globalization. However, the dualism problem is militating against the realization of its potentials. The economy needs rapid growth to absorb the growth in the labour force.

          The evidence from the recent experience suggest that large savings in economic activity associated with financial boom-bust recovery cycles have consequences for growth and labour market conditions in developing countries. Labour market conditions deteriorated in all countries with the outbreak of globalization. Indeed, it appears that reduced income and unemployment in unorganized and informal markets have been the adverse impact of globalization on poverty and inequality. Decline in wages and growing unemployment combined to produce a sharp increase in poverty throughout the developing economies (Makwarara 2002)

          The labour market has increasingly witnessed crisis in the globalization era. A considerable number of studies have shown that the inequality of earnings for workers around the world has widened with the outset of globalization and the rising wages of skilled workers relative e to unskilled workers is an important cause of this increase in inequality. Various explanations exist for the rising relative wage of the skilled compared to the unskilled worker in Asia, Latin America and U.S. during the 1980’s and 1990’s (Lewis 2001)

          It is also observed that economic growth rates in the developing countries are insufficient to absorb the growing pool of unemployed labour has been estimated that mass unemployment among the semi-skilled and unskilled will not fall significantly below 30% in the medium term. It is noted that unemployment is structural and will not be significantly reduced in the coming decades without major state intervention (Lewis 2001).

1.2 STATEMENT OF THE PROBLEM

The voluminous literature on the sources of econ0omic growth has identified a wide range of natural and government imposed stimulants and impediments to economic growth. In particular, a huge level of educational attainment, an open-trading regime a low level of government consumption and political stability are generally seen as having a significant positive effect on growth

          A relatively recent development in the literature on internal growth is its interest in the effect of institutions on economic growth and the vital role played by the labour market institutions in economic growth. This research work considers the role of labour market crisis on economic growth of the developing economies. The high rate of labour unionization has been a notable characteristic of a number of economies with different growth performances, though an probable link between labour unionization and growth has been frequently noted. This paper attempts to look at the effects of labour market crisis on developing economies using Nigeria as a case study. Strike volume has been studied from a number of viewpoints. One viewpoint, attribute strike propensity to such economic factors as unemployment, inflation and real wage change (Faber 1978). The other viewpoint is the organizational perspective which states that strikes are related to such structural factor as the extent of unionization and the degree of centralization and institutionalization in collective bargaining (Brittand, Galle 1972: Synder 1975)

Most of the developing economies are faced with numerous labour market crisis and the Nigerian economy is not an exception especially after the structural adjustment program (SAP) era. The Nigerian labour market problem could be seen as one of the chronic labour crisis with high wage inequality and unemployment statistics. Since independence there has been series of distortions in the labour market ranging from industrial actions embarked upon by the Nigerian labour congress (NLC) pressing for improved working conditions for workers. These actions are in the form of strikes. The academic and non-academic union of the Nigerian tertiary institutions are not left out  as they embark on several strike action to either press for improved working condition, redressing the wage inequality problem and in some cases to register their disagreements with of governments development programme. All these lead to loss of man-hour which policy-maker fear will adversely affect the national output.

During the military era, It was not news for workers to embark on strike as it was the one most potent weapon at the disposal of the workers to drive home their demands. The Obasanjo Administration has not been spared from the workers wrath as workers have embarked on strike actions severally to press for their improved conditions which are often times contained in the national economic empowerment and development strategy(NEEDS) which ii the policy thrust of the Obasanjo Administration.

What then has been the effect of these myriad of labour crisis on the productivity and the growth of the Nigerian economy? Do these crises arise from economic growth or does economic growth arise from these industrial crises? The above questions have not received adequate attention empirically. Hence, this research work tends to investigate the effect of these labour market crises on Nigerian economic growth and productivity. Labour market crisis in this research work will be proxy to man-hour loss as a result of the crisis.

1.3 OBJECTIVE OF THE STUDY

The broad Objective of this research is to investigate the effects of labour market crisis on developing economies using Nigeria as a case study. Specifically this research is set out to achieve the following objective:

1.  To investigate the effect of labour market crisis on the economic growth of Nigeria

2.  This research will also explore other variables that affect GDP and hence on the labour market.

1.4 RESEARCH HYPOTHESIS

The following hypothesis were formulated in line with the Objectives of this research work to guide the research

1.  Labour market crisis has significant impact on the economic growth of the economy

2.  Labour market crisis have negative impact on economic growth.

1.5 SCOPE OF THE STUDY

This research is designed to investigate of labour market crisis on developing economies using Nigeria as a case study. This research work covers the period 1985 – 2005. The choice of this period was predicted on the fact that this period witnessed liberalization and globalization with the labour union’s resistance to this new global world thereby leading to series of industrial action where labour union sees strike a useful tool.

1.6 SIGNIFICANCE OFN THE STUDY

The crisis that has for a long time beclouded the Nigerian labour market has been a source of worry to both policy makers and economy watchers. This worry comes the fact that industrial actions does not affect the sector concerned but also affects the general economy because of its multiplier effect.

The study, which is aimed at assessing to what extent the labour market crisis affects the economy, will be of tremendous importance not only to the Nigerian economy, but also to the global economy since globalization and liberalization has brought global economic systems together. The study or research will be significant also to international agencies – most importantly the international labour organizations and the world trade organization. The study will make available to them the adequate information on the relationship between labour market crisis and economic growth. The Nigerian planning commission will also find this research very relevant as it will make available to it adequate information needed for policy formulation as it affects labour institutions. The findings of this research will also help to improve the current economic reforms that have to do with labour market institutions. Finally, this research will serve as a material for researchers carrying out studies in related areas.