Employment is an important variable in any economy’s development equation. Employment has both economic and social ramifications. Consequently, the labour force comprises all persons 16 years of age (slightly older in some economies) and upward who are neither in prison nor in a mental institution and who are either employed or unemployed. Employment, particularly full employment, drives an economy and puts such economy on a high production possibility frontier. It is for the same reason that high rates of unemployment portend a huge output loss for an economy.
In economics, between 5 per cent and 5.5 per cent unemployment is construed as full employment because at some point in time, some persons may not wish to work for various reasons. Before 1936, full employment was never considered an objective of government. The economists before then (referred to as political economists or moral philosophers) argued that the economy was always at full employment and that supply created its own demand. Hence, any deviation from full employment was very temporary and if it persists for a while, it was because workers were unwilling to take a wage cut. This position which prevailed during the Great Depression of the 1930s is still relevant today with some coloration, here and there, by neo-and new classical economists.
However, in 1936, a Cambridge economist John Maynard Keynes, seeking solution to the Great Depression, postulated that the equilibrium wage rate and number of persons employed were not full-employment output indicating that there may be those persons willing and able to work at a slightly higher wage than the equilibrium wage rate but could not find employment. He called the situation involuntary unemployment. Keynes used the labour market to argue that the classical economists would have wanted the economy to be at full employment while, in reality, the economy was not at full-employment output – that is, the economy was producing below its potential. He labeled the views of the classical economists as notional analysis. The Keynesian analysis, sometimes referred to as Depression economics, rescued capitalism in the short-run and made government, that is, the state, an active economic agent. Consequently, economists began to derive ways of measuring unemployment and compute the output loss due to unemployment. There are still economists today who believe that an economy should still be examined from the point of full-employment.
Within mainstream economics, the matter of full employment and the role of government in working towards this goal is ideological. Notable scholars did much research and published scientific papers on both sides of the argument. The intervention of governments (fiscal policy) to set their economies on the path of recovery and growth convinced skeptics that the state has a role to play in the economy. Thus, most states in Europe and North America enacted laws mandating their governments to ensure that full employment was among the macroeconomic objectives of the state. Hence, the employment/unemployment matter should not be taken lightly. If a high percentage of the labour force is unemployed, then that economy cannot be performing satisfactorily even if such an economy is registering positive growth rates.
The former Federal Office of Statistics (now National Bureau of Statistics) had been calculating employment/unemployment statistics to guide state policy over the years. During the 1960s, data from the then FOS reflected a full-employment Nigerian economy. Even when government was concerned about rising unemployment, the FOS, from 1983 to 1998, published unemployment rates average as 4.0 per cent, signaling full-unemployment. From 1999 to 2013, the rates of unemployment published by the present National Bureau of Statistics, NBS, mirrored the concern of government that unemployment was not only a major challenge but also one that indicated a noticeable rising trend among youths. For example, in 2010, the rate of unemployment stood at 21.4 per cent and rose to 27.4 per cent in 2012, declining to 24.7 per cent in 2013. These high rates clearly indicate that the economy has a serious unemployment problem. These rates are quite at variance with the 5 to 5.5 per cent full employment rates.
The NBS recently published new rates of unemployment (for the period 2010 – 2014) for the Nigerian economy based on a ‘new’ methodology. The rates suggest that the economy is almost at full employment, as the rate for the last quarter of 2014 stood at 6.4 per cent. The rate, as at the 1st quarter of 2015, was 7.5 per cent. One is not so much concerned about the methodology used because methodologies may be based on certain assumptions. (If any of the assumptions is relaxed, the calculated rate may be different.)
However, what is worrisome is the speech made by the Statistician-General on May 14, 2015 while welcoming the committee on the review of the framework for calculating unemployment rate in Nigeria. He asserted that the ‘new’ rates of unemployment were based on scientific method and that nobody should be sentimental and ideological over unemployment figures, claiming that this was not social science. He further argued that the new rates were calculated on the basis of accepted international best practices. Is the situation different in the Nigerian economy? Every economy must take into account its own peculiarities in applying the concept and calculation of employment and unemployment.
*Ekpo, a professor of Economics, is Director-General, West African Institute for Financial and Economic Management (WAIFEM), Lagos.
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