OUTSIDE THE BOX BY ALEX OTTI
“When you lose your job, the unemployment rate isn’t 4%, it is 100%”
–Thomas Freidman
“There is no such thing as acceptable level of unemployment because hunger is not acceptable, poverty is not acceptable, poor health is not acceptable and a ruined life is not acceptable” – Hubert H, Humphrey
Nigeria’s National Bureau of Statistics (NBS) published its report recently on unemployment. In the said report, the rate of unemployment as at the last quarter of 2020 stood at 33.3% representing an increase of 6.2% when compared with the Quarter 2 unemployment rate of 27.1%. Breaking the numbers down, the NBS stated that the total labour force, meaning persons within the ages of 15 and 64, was 122m, showing an increase of 5m from the labour force of 117m people in Quarter 2. The country’s underemployment rate was put at 22.8%. The NBS Report further stated that youth unemployment (those aged between 15 and 34), increased to 42.5% from the Quarter 2 rate of 34.9%. Youth underemployment stood at 21% for the same period.
For proper context, unemployment refers to persons who are within the employment bracket, usually aged 15-64, actively seeking for, but are unable to get jobs. It is people within this age bracket that are referred to as the labour force in an economy. The rate of unemployment, therefore, is determined by dividing the total number of the unemployed by the total labour force expressed in percentages. One would not be deemed to be unemployed if, though one has no job, is not looking for work, even if the person would want to work. In economic and labour parlance, four types of unemployment are identifiable. These are Structural Unemployment, Frictional Unemployment, Demand Induced Unemployment and Voluntary Unemployment.
Structural Unemployment refers to a situation where the skills of the labour force does not match the skills required for available jobs. A clear example is the information technology revolution sweeping through most of Europe, the Americas and the rest of the world. It also has to do with a situation where jobs exist in a location where the labour force does not exist and requires some movement to access those jobs. Frictional unemployment on the other hand refers to a situation where the work force is in between jobs. The time between when the worker leaves one job and when he gets another is a good example. Frictional unemployment is also referred to as temporary unemployment.
The most ubiquitous type of unemployment is the Demand Induced Unemployment. Here, we are talking of unemployment caused by drop in demand for goods and services. When for any reason, mostly a depression in the economy, demand drops, companies would naturally reduce productivity to match the decreasing prices. The first casualty of this action is the labour force.
Unfortunately, the action of reducing the number of employees has a self-reinforcing effect as wages are bound to reduce, inducing a further reduction in demand and further reduction in employment. The last type of unemployment, the Voluntary Unemployment refers to a situation where a worker chooses to leave a job without taking up another one or chooses not to look for a job. It may be that the worker found out that his ‘take home pay’ hardly takes him home. Interestingly, if such a person refuses to actively look for another job within a specified period, usually one month, he would cease to be qualified as unemployed. It is instructive to note that the types of unemployment discussed above can either be caused by the demand or supply side factors. Both structural and frictional unemployment can be said to have a relationship with the supply side while the demand side would be responsible for demand induced and voluntary unemployment.
Coming back to the current numbers published by the NBS, it is clear that unemployment in Nigeria has never been this high in the post-independence Nigeria and it has been on the increase quarter on quarter. Someone may say that throwing the pandemic into the mix may have exacerbated the matter. While this may be a logical argument, we also observe that it is within this and subsequent periods that the economy is famously reported to have recovered from recession. So, what went wrong and why the contradiction? By the way, economists agree that there is a tolerable level of unemployment necessary in every economy. This is called natural unemployment rate or better still, the “full employment” rate. It is the minimum unemployment level that is not as a result of inflation and most economies have pegged this number at about 4% to 5%. So when the unemployment rate begins to approach double digits and the 30s as is now the case with Nigeria, it calls for serious interrogation of the economy as unemployment is a major indicator of the general state of the economy.
We must agree that a country where one in three people is looking for a job is easily among the worst cases globally. Those who know insist that even this number is understated. They believe that the case is much worse than this. There may be cogent reasons to believe them, and we shall delve into this shortly. But even if it is true as reported, the situation is bad enough and calls for great concern. Analysts believe that the total number of people recognised as belonging to the labour force in Nigeria has declined over the years by as many as 10 million people. This could either be for reasons of error in calculation or simply because such persons have become frustrated after a long futile search for non-existent jobs and have voluntarily stopped searching.
Again, when account is taken of the level and rate of youth unemployment, the figure begins to look uglier at close to 65%. Put differently, out of a youth labour force of 10 million people, 6.5m of them do not have anything to do, even though they are actively searching. It means that these 6.5million people are available for any type of task at all, including armed robbery, kidnapping, banditry, terrorism and the like. They make up what is referred to as “the reserve army of the unemployed”. Any wonder the alarming level of insecurity in the land?
It is imperative that the government puts on the front burner the issue of unemployment in the country, even if not out of altruism but out of self-preservation and survival. In the first place the level of productivity of any country is determined by the level of productivity of its work force. There cannot be economic growth if the work force is idle. If our GDP is $400m, generated by half the work force, it follows that at full employment our GDP can easily be $800m, all things being equal. Therefore, the level of unemployment should be seen for what it is; an economic growth prevention issue. Still on the economy, the unemployment rate is also a big threat to government revenue. Granted that our economy is distorted by our revenue from crude oil which we are aware has been declining, the level of unemployment means that our revenue generation potential has been restricted to those who are lucky to have something productive to do. The massive number of jobless people would not only NOT be contributing to government revenue by not paying taxes, but also would be a burden on government, particularly in climes where unemployment benefits and social security are provided by government.
Again, the psychological effect on that number of the populace that have no job, can only be imagined. The fact that when their lucky compatriots leave for work in the morning, when they have nowhere to go, is very unhealthy, particularly to the youth amongst them. The fact that they are unable to afford the minimum requirements for modest living may begin to affect their physical and mental health. Nigeria is said to be the poverty capital of the world with the latest data from the World Poverty Clock putting the number of people living in extreme poverty at close of 87m people. One does not require an expert to link this number to the unemployment figures in the country. It is also for this reason as highlighted above, that they become easy targets for recruitment into crime and violence.
It is our considered opinion that reduction in unemployment levels should be a major item on the priority list of any government, be it central or regional. The way governments in this country approach the challenge of job creation, leaves much to be desired. While we agree that it is in the place of the private sector to create jobs, we restate that it is squarely in the place of the public sector to create the enabling environment for the private sector to operate and express itself. This fact cannot be overemphasised. Investments in roads, rail, airports, bridges, schools, hospitals, should not be made with a mindset to recoup them directly.
Where it is possible to recoup, all well and good. But the reality is that these are services that are usually provided by government. A situation where we are defined by infrastructural decay does not support private sector investments. We had stated here that investment flows to those areas that are prepared to receive them. Following this is the issue of insecurity. A lot has been said about the level of insecurity in the country, which has assumed very dangerous dimension in the recent past. While job creation would drastically reduce the reserve army of the unemployed and therefore the number of young people available to be recruited for criminal activities, it bears repeating that insecurity is a major threat to private sector investment and therefore is a major reinforcer of high unemployment levels in any economy.
There is also the need for the government to be deliberate about the kind of investments it wants to support. While some investments will always happen by the reality of the efficiency of capital, government must encourage labour-intensive investments to support job creation and provide social stability. Today, oil accounts for about 10% of our GDP and 90% of our foreign exchange earnings. However, it employs less than 100,000 Nigerians. While it remains attractive to invest in this sector, there is no doubt that additional investments would not mean additional jobs as this industry is highly automated. It is in fact an enclave sub-economy relative to the larger Nigerian economy. This is also true of some other industries that are increasingly turning to information technology that continues to displace labour and widen the unemployment gulf. These may not be the industries for government to focus on in the short to medium term. On the other hand, Agriculture, which contributes more than 25% of GDP, is reported to engage close to 70% of the labour force.
Anything government can do to push these numbers would only work to reduce the level of unemployment in the country. It is also a veritable way to solving the food crisis which is assuming a dangerous dimension in the country. With an estimated population of over 200m people, feeding the country is enough business to support the economy not to talk of adding exports to the mix, which would be the long-term goal. We must, however, warn that in the long run, our economic planners must realise that agriculture on its own, cannot guarantee long term growth. It must be linked with the other sectors of the industry to create a loop of activities that will be self-reinforcing and sustaining.
It is on this basis that that we turn to Education. Again, we had discussed Education extensively in the past. The speed at which technology seems to be over taking the universe and the realities of the pandemic have made us realise the need to pay particular attention to manpower and skill development. This then brings us to some very critical questions. For instance, what is the quality of teaching in our public schools? Who is teaching our students and what skills do they possess? What are they teaching them? In what kind of environment is learning happening? The truth is that we are not preparing our children for the global competitive future.
The world seems to have left us behind, where we still teach by rote and memorising, while the world is in the era of critical thinking and innovation. We must hit the reset button and recalibrate this all-important sector, and it must start right from the rudimentary level all through the tertiary level. Priority should be given to Science Technology, Engineering and Mathematics (STEM). There is a lot of literature on this. I will recommend that those interested should consult the literature. We have no time to waste, if we must catch up with the rest of the world.
