CHAPTER ONE

1. INTRODUCTION
   1. BACKGROUND OF STUDY

        Unemployment and inflation has been an issue of concern, most especially in developing country like Nigeria, to policymakers and researchers alike. This is because unemployment and inflation are one of the key macroeconomics indicator and determinant of economic growth and development which is the priority of any economy. The Nigerian economy has remained largely underdeveloped despite the increases in growth rate declare every year. In 2014 budget, Nigeria Economy was projected to grow at 4.5% and in 2015 budget it was projected to grow at 5.5%, a figure which is far higher than the developed country like USA that recorded the growth rate of 2.2% in 2014.

        The growth in Nigeria economy has been described as exclusive growth which is worrisome and calls for concern. The per capita income is low, unemployment and inflation rates are high. There are many socioeconomic challenges. The economy has continued to witness economic recovery which is immediately followed by economic recession and depression. The situation in Nigeria is disturbing. The various macroeconomic policies by government have been unable to achieve desired goals of price stability, reduction in unemployment and sustained economic growth. The fluctuations in the economy have confirmed the need to manage the economy effectively. The essence of macroeconomic management underlines the rationale of the government as a vital economic agent. However, it appears that government intervention has not been able to cure the ills in the economy.

        For several decades, economic performance has not been impressive. The continued economic crisis, with the associated problems of high inflationary pressure, high exchange rate, debt overhang, adverse balance of payment and high inflation rates is difficult to explain. Against a high rate of unemployment and underemployment, a large public sector, low wages and poor working conditions has been persistent high inflation rate in Nigeria. Also, underemployment and unemployment are prominent feature of the informal labour market as well. Consequently, the full potentials of labour-surplus economy have not been fully exploited (Aminu and Donga 2014).  Unemployment and inflation are two intricately linked economic concepts. Over the years there have been a number of economists trying to interpret the relationship between the concepts of inflation and unemployment.

         Phillips A.W (1958) observed that there are two possible explanations of this relationship – one in the short term and another in the long term. In the short term there is an inverse correlation between the two. As per this relation, when the unemployment is on the higher side, inflation is on the lower side and the inverse is true as well. The relationship between unemployment and inflation can be better explained with Phillips curve. In the short term the Phillips curve happens to be a declining curve. The Phillips curve in the long term is separate from the Phillips curve in the short term. It has been observed by the economists that in the long run, the concepts of unemployment and inflation are not related.

         As per the classical view of inflation, inflation is caused by the alterations in the supply of money. When money supply goes up the price level of various commodities goes up as well. The increase in the level of prices is known as inflation. According to the classical economists there is a natural rate of unemployment, which may also be called the equilibrium level of unemployment in a particular economy. This is known as the long term Phillips curve. The long term Phillips curve is basically vertical as inflation is not meant to have any relationship with unemployment in the long term. It is therefore assumed that unemployment would stay at a fixed point irrespective of the status of inflation.

         Generally speaking, if the rate of unemployment is lower than natural rate, then the rate of inflation exceeds the limits of expectations and in case the unemployment is higher than what is the permissible limit then the rate of inflation would be lower than the expected levels. The Keynesians have a different point of view compared to the Classics. The Keynesians regard inflation to be an aftermath of money supply that keeps on increasing. They (Keynesians) deal primarily with the institutional crises that are encountered by people when firms increase prices. Firms make huge profit by increasing the prices of the goods and services that are provided by them. Also government increases money supply in order to meet up with this demand, so that the economy may keep on functioning. Unemployment and Inflation are issues that are central to the social and economic life of every country. The existing literature refers to inflation and unemployment as constituting twin problems that explains the endemic nature of poverty in developing countries.

        It has been argued that continuous improvement in productivity is the surest way to reduce inflation. Growth in productivity provides a significant basis for adequate supply of goods and services thereby improving the welfare of the people and enhancing social progress. From the foregoing, the study intends to empirically examine the effect of unemployment and inflation on economic growth to determine what type of relationship exists between unemployment, inflation and economic growth.

1. STATEMENT OF THE PROBLEM

         Unemployment and inflation has been an issue of concern, most especially in developing country like Nigeria, to policymakers and researchers alike. This is because unemployment and inflation are one of the key macroeconomics indicator and determinant of economic growth and development which is the priority of any economy. The Nigerian economy has remained largely underdeveloped despite the increases in growth rate declare every year. The challenge posed by unsustainable inflationary figures in Nigeria is becoming alarming. Their ravaging effects are almost wiping out the middle class, as one no longer sees a clear difference between the haves and have not. Both the rich and the poor have become victims of this hydra-headed phenomenon call inflation. Thus, the political and security implications are daunting.

         Here, the International Labour Organisation prediction is that the crisis could also push another two hundred million workers into extreme poverty as they are faced with the grim reality of being forced out of a living in informal, underpaid and unstable work situation (such as in South Asia and Africa). Beyond the fifty-one million people that will be directly affected by the global job losses, a number of people that depend on them will also be affected indirectly. For example, an average worker has about five dependants and those in the Diasporas who normally remit money home will be equally affected. It could also lead to high crime rate and prostitution by young females in addition to increasing the rate of drug trafficking as well as money laundering. Furthermore, it would encourage indiscipline from children of parents that are directly affected, as standards of living will also fall since those affected can no longer pay for the things of interest. Consequently, governments have to do something urgent to ameliorate the situation as the situation at hand is not a child’s play.

         Finally several research has been carried out on Effect, consequence, sources and measures on unemployment and inflation rate in Nigeria. But not even a single research has been carried out on Re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015).

1. AIMS AND OBJECTIVES OF STUDY

        The main aim of the study is to determine Re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015). Other specific objectives of the study includes;

1. to determine the relationship between re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015).
2. to determine the factors affecting re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015).
3. to determine the effect of re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015).
4. to determine the extent to which re-examination of the impact of unemployment and inflation on the economy has affected Nigeria.(1975-2015).
5. to proffer possible solutions to problems.

1. RESEARCH QUESTIONS

1. What is the relationship between re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015)?
2. What is the factors affecting re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015)?
3. What is the effect of re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015)?
4. What is the extent to which re-examination of the impact of unemployment and inflation on the economy has affected Nigeria.(1975-2015)?
5. What are the possible solutions to problems?

1.5   STATEMENT OF RESEARCH HYPOTHESIS

1. SIGNIFICANCE OF STUDY

        The study on Re-examination of the impact of unemployment and inflation on the economy of Nigeria.(1975-2015). Will be of immense benefit to the people of Nigeria in the sense that,If the cause of unemployment and inflation  in Nigeria are identified and elaborated, it will lead to an increase in investment, productivity, exports, and employment opportunities, which would bring about increase in economic growth and development in the country.

         It will also  serve as a tool and a guide towards the formation of policies and how they are implemented to help curb the problem of unemployment and  inflation in Nigeria. Finally the study will contribute to the body of existing literature and knowledge to this field of study and basis for further research.

1. SCOPE OF STUDY

        The study on re-examination of the impact of unemployment and inflation on the economy is limited to Nigeria.

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1. DEFINITION OF TERMS

Impact

        Changes in knowledge, skill, behaviour, health or living conditions for children, adults, families or communities. Such changes are positive or negative long term effects on identifiable population groups produced by a development intervention, directly or indirectly, intended or unintended.

        Is a situation in which able-bodied people who are looking for a job cannot find a job.

         Is a sustained increase in the general price level of goods and services in an economy over a period of time​

        The study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time, and distribute them for consumption, now and in the future among various people.