ECN225-Labour Economics Course Material PDF

GENERAL INTRODUCTION
Welcome to the second year of your academic pursuit in the Distance Learning Institute, University of
Lagos. Labour Economics (ECN 225): is designed to equip you with a thorough understanding of the
theory and practice of Labour Economics. The ten (10) study sessions cover the following topics:
Definition and Scope of Labour Economics, Demand for Labour and Suppy of Labour, Human Capital,
Theory of Wage Determination, and Labour Union and Mobility of Labour. Others are Trade Union,
Collective Bargaining, Employee Grievances, the Problem of Unemployment, and Unemployment in
Nigeria: Causes and Solutions.
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Study Session One
DEFINITION AND SCOPE OF LABOUR ECONOMICS
1.0 Introduction
Labour, as salient factor of production, is the physical and mental efforts used in creating goods and
services. We examined labour from three perspectives namely: skilled labour─which requires high
technical expertise acquired through formal education/training; semi─skilled labour: this category of
labour uses less skills and lots of tactical know-how in carrying out production activities; and unskilled
labour which requires a lot of physical energy and less of mental endowment.
Labour economics studies the operation of labour market as understanding the interactions as well as all
issues involving employers and employees. Labour market considers the pattern of wage, income and
employment determination.
The main/active labour market agents are the households (labour supplier); firms (those that demand for
labour services) and government institutions/agencies (human resource as well as personnel issues
regulators). We study labour economics since household income is a major part of national income.
In addition, wage is seen as a determinant of wellbeing and measure of living standard. The study of
labour economics enables us to understand income distribution further.
Moreover, labour economics avail us the opportunity to understand the full operation of labour market.
Hence, labour market is any arrangements where willing and able workers find jobs as well as willing
employers find willing, qualified, eligible and able workers.
Internal labour market concentrates on wage and employment determination within a firm while external
labour market concentrates on wage and employment determination across industries.
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Learning Outcomes for Study Session One
At the end of this study session, you should be able to:
1.1 define labour economics;
1.2 explain the reasons for studying labour economics;
1.3 explain the labour market;
1.4 examine the Nigeria labour market; and
1.5 discuss the problems of labour market.
1.1 Definition of Labour Economics

Labour is the totality of all human, physical and mental efforts used in creation of goods and services.
That is, it is the measure of work done (i.e. physical or mental) by human beings. From the above
definition, it is clear that labour is an important factor of productive resources. Also, it is logical to
conclude that labour in economics is not just limited to physical effort but also mental activities which
give rise to the creation of utility. Therefore, in the field of economics, labour is classified into skilled,
semi-skilled and unskilled labour.
Skilled Labour: It is a segment of the work force with a high skill level that creates significant economic
value through the work performed. Skilled labour is characterised by advanced or formal education.
Examples of skilled labour include medical doctors, engineers, scientists, lecturers, lawyers, etc.
Semi-Skilled labour: It is the part of the work force requiring less training than skilled labour, and more
than unskilled labour. The labour requirement here is generally routine in nature and requires less skill or
expertise. Examples include book binder, ironman, dyer, dry cleaner, etc. it can be added that semi-skilled
labour stands in between the skilled labour and unskilled labour.
Unskilled labour: This requires operations that involve the performance of simple duties, which require
little or no skill. This kind of labour requires physical exertion as well as familiarity with variety of
articles. Examples include watchman, sweeper, cleaner, loader, messenger, etc.
Economics is concerned with maximization of resources (i.e. labour) to achieve maximum output.
Labour economics is defined as the branch of economics which studies how the market for labour
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operates, with a view to understanding the interactions between workers and employers. Labour
economics studies the nature and determinants of employment and compensation. There are three (3) key
players in the Labour market: the workers, the firm and the government. Labour economics basically
looks at the suppliers of labour services (workers), the demanders of labour services (employers), and
attempts to understand the resulting pattern of wages, employment and income.
The actors in the labour market

Households decide when to enter the labour market, how much education or training to acquire, which
occupation or industry, number of hours to work, whether to quit or retire. They are basically suppliers of
labour services in any economy.
Firms choose number of workers to hire, hours of work, when to layoff or close plant, kind of pension or
retirement policy to adopt among others. Unlike the households, they are demanders of labour in an
economy.
Government establishes the environment by providing training, unemployment insurance, workers

compensation, pensions, laws to protect workers and firms, etc. It is often referred to as the regulator (it
regulates the activities of all economic agents) and enabler (it provides an enabling environment which
makes it attractive to woo both foreign and local participants in the economy).
1.2 Why Study Labour Economics

Labour is the most active input of all factors of production. Every other resource in the production process
could be dormant without labour input. Unlike traditional economic theory, modern economic theorists
have subsumed entrepreneur as a part of labour input. Hence, the study of labour is of great essence since
it involves human beings. Below are some of the reasons for studying labour economics;
 For virtually all households in the economy, the sale of their labour services constitutes their
major source of income.
 The price of the goods that they sell is the main determinant of their economic well being.
 To understand the distribution of income in society─who earns what and why, we need to
understand labour markets, and how wages are determined.
 Like every commodity, labour has a number of special features/peculiarities that must be taken
into account in a more in-depth analysis.
 Each of these features has important implications for how labour markets work and for prices and
quantities.
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 Labour economics helps to understand the result pattern of income, employment and wages by
examining and analyzing wage distribution across industries.
 It has helped us to gain a far better understanding of the factors affecting labour and labour
market.
 It helps in the study of the factors affecting the efficiency of workers, their deployment between
different industries and occupations, and the determination of their pay.
1.3 Labour Market

In a simple term, labour market is a market in which workers find paying work, employers find willing
and able workers, and the wage rates are determined. Technically, labour market involves the interplay of
the demand for labour and the supply of labour in the determination of the wage rate. Labour market may
be local or national in scope, and is made up of smaller, interacting labour markets for different
qualifications, skills and geographical locations. They depend on exchange of information between
employers and job seekers about wage rates, condition of employment, level of competition and job
location.
Types of labour market
There are two types of labour market: internal and external labour market.
Internal labour market (ILM) refers to the determinants of pay and employment within a firm, while
external labour market (ELM) refers to the determinants of pay and employment between firms, or
within and across industries. Economists place emphasis on these distinctions in explaining how labour
market works.
1.4 Labour Market in Nigeria

The Nigerian labour market is highly competitive. Nigeria is a hierarchical society and its business culture
completely differs from the other countries, which makes Nigeria labour market simultaneously
interesting and unpredictable for foreign job seekers and people who return from the diaspora. The key
sectors in the Nigerian labour market include oil and gas, energy, hospitality, financial institutions,
building/real estate, and telecommunication system. Employment process in Nigeria is much more
complicated than in most countries of the world. In spite of the employment process in Nigeria, most of
the Nigerian companies tend to be more tolerant with potential employees.
The reality of today’s labour market glaringly reveals that labour supply is greater than that of demand;
the labour market is saturated. Even those that are presently engaged are uncertain on what the tenure of
their job is because they can be thrown out for no good reason. The situation in the present day labour
market is so bad that even the expatriates now treat Nigerian workers in a way that is reminiscent of the
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days of slavery and colonial era.

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Due to the saturation of the labour market, most graduate applicants now apply for lower cadre jobs, yet
most of them are rebuffed by some employers, particularly expatriates of Asian origin who now seem to
be making a mockery of the situation. There are cases where young graduate applicants were
disrespectfully invited to participate in various recruitment exercises only to be collectively treated in an
abysmal manner.
The labour market is in this crisis due to the negligence and levity being exhibited by the government at
all levels. In other climes, the issue of spurious employment agencies ripping off vulnerable youths would
never come to play as there would have been statutory measures to nip it in the bud. More so, it appears
that governments have literally conspired not to create jobs for the unemployed. Today, most
businessmen are frustrated in their businesses as a result of epileptic power supply, unjustified and
multiple tax payments to virtually all levels of government and prevailing high interest rate charged on
money borrowed from banks. Given these militating factors, how would it be possible for the private
sector to create jobs for the unemployed and in turn keep themselves and families from the effects of the
harsh economy?
1.5 Problems of the Labour Market
 Industrial conflicts: Extreme level of expression of industrial conflict through strikes and
destructive forms of protests affect negatively the pace of economic development in Nigeria.
 Wage determination by fiat: The process of wage determination is governed by serious
intervention on the part of the state, instead of allowing wages to be negotiated by labour market
factors which would allocate such wages efficiently.
 Unemployment rate is very high in Nigeria and the growth rate is much faster than in the relatively
advanced countries.
 Inflation: The rate of growth of factor and commodity prices is again much faster in this part of the
world. It is also possible that wages constitute a significant amount in the inflation equation. This
problem is further heightened by structural imperfection and weak institutions in Nigeria.
 Conflict strategies of managers and senior staffers: Senior staffs who by virtue of their position in
the organisation are supposed to be very close to the employers express very high incidence of
open conflict over the importance of the labour market, like terms and conditions of employment.
 Increased inadequacy of imported ideas and formats: It has been observed that theories, policies,
practices and programmes imported from abroad do not work optimally in Nigeria as intended,
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due to cultural, historical and structural differences.

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Summary of study session one
Labour is the physical and mental effort without which production of goods and services cannot take
place and as such labour is the most important factor of production.
Labour economics as a branch of economics studies the pattern of interactions between suppliers and
demanders of labour services.
Households offer their mental effort as well as physical ability to firms/businesses in order to facilitate
production of goods and services.
Labour market is the arrangement for selling and buying of labour services.
Internal labour market concerns itself with wage and employment determination in a firm while
External labour market focuses on how wage and employment are determined across industries.
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Self-assessment questions for study session one
S.A.Q.1.1
Discuss labour as the most important factor of production.
S.A.Q.1.2
Explain labour economics as a branch of economics.
S.A.Q.1.3
The labour market connects households to businesses. Discuss.
S.A.Q.1.4
What are the challenges facing labour market?
S.A.Q.1.5
The Nigerian labour market is keenly competitive. Discuss
References
Begg, D; Fischer, S & Dornbusch, F (2008); Economics: 9th Edition; McGraw-Hill, London
Fashoyin, T (1980); Industrial Relations in Nigeria (Development and Practice). Ikeja: Longman Nigeria.
Freeman, R. B (1987) "Labour economics," The New Palgrave: A Dictionary of Economics.
Umo, J. U, (1986); Economics; An African Perspectives, Johnwest, Lagos Nigeria.
Tucker, I .B (2003); Macroeconomics for Today: 3rd Edition. South-Western; Natorp Boulevard, Mason,
Ohio
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Study Session Two
DEMAND FOR LABOUR AND SUPPY OF LABOUR
2.0 Introduction
Labour demand is the total amount of labour or labour hours which an economy is willing to employ at
any given period of time while labour supply is the total number of labour hours available for work at
certain period of time and at a given wage rate. We arrive at equilibrium for labour when labour supply
equal labour demand. This equilibrium labour demand is determined by the real wages which is the wage
which firms are willing to pay for labour services and what households are willing to accept as reward for
their services offered. If labour is mobile, firms must pay competitive industry wages in order to obtain
required workers as well as work hours.
The demand for labour increases market wages and more labour will enter the labour market. Also, the
labour demand curve is downward sloping which implies that at higher level of employment, wage rate is
expected to be low.
The value of marginal product of labour, as the contribution of labour to production in monetary terms, is
the concept used in economics to determine labour’s wage. However, the diminishing returns explain why
the marginal physical product of extra unit of labour falls.
Increased wage rate makes leisure more expensive thereby inducing workers to supply extra hour of work
in order to earn more income which in turn is used to purchase leisure consequently making work-leisure
trade─off more interesting. Hence, backward bending labour supply curve is explained in the light of this
reality.
Learning Outcomes for Study Session Two

2.1 discuss labour demand and its determinants;
2.2 discuss the shifts in the demand for labour and the factors responsible;
2.3 define supply of labour; and
2.4 discuss the determinants of labour supply.

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2.1 Labour Demand and its Determinants
As explained above, there are three active participants in the labour market─the firms, the workers and
the government. The players involved in the demand for labour are the firms. Hence, Labour Demand is a
concept that describes the amount of labour that an economy or a firm is willing to employ at any given
period of time. This demand may not necessarily be in the long run equilibrium, and is determined by the
real wage firms are willing to pay for this labour and the amount of workers that are willing to supply
their services at that wage. Demand for labour increases market wages and more workers enter the
market. But this higher cost of labour will mean that employers will use less labour because labour is
more expensive. Assuming there are a large number of employers in a region, or that workers are highly
mobile geographically, the wages that a company will pay workers is dependent on the competitive
market wage for a given skill set. This means that any company is a wage taker, which is simply another
way of saying, companies must pay competitive wages in order to obtain workers.
The demand for labour is a derived demand. Labour is only demanded as an input into the production
process. A change in demand for the good in question will trigger a change in the demand for labour that
helps to make the product. In the product market, the demand curve is downward sloping. As the price of
a good falls, one would expect its demand to rise, ceteris paribus. Similarly, one would expect this to be
the case in the labour market too. If the price of labour falls (i.e. the wage rate falls), the firms demand for
labour would be expected to rise, ceteris paribus. If the price of labour was falling relatively to the price
of capital, then it would make sense for the firm to substitute labour for capital.
Of course, in the short run we assumed that the amount of capital is fixed, but given the law of
diminishing marginal returns, eventually, additional workers will be worth less to the firm than the
previous workers, and so their wages will be lower to reflect this fact. So looking at it from different
angles, one would expect lower wage rates at higher employment levels, thus making the demand curve
for labour to be downward sloping. The demand curve for labour can be derived using Marginal revenue
product theory which will be discussed in the following section.
2.2 Determinants of Labour Demand

2.2.1 Marginal revenue product theory
This theory seeks to answer the question of how many people should a business employ? It also tries to
analyse the link between the demand for labour and a variety of economic factors. Under this theory, there
is need to define some terms;
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2.2.1 Marginal physical product (MPP): This is the extra physical output produced by one extra
worker.
2.2.2 Marginal revenue product (MRP): This is the extra revenue gained by the firm as a result of
employing one more worker. If an extra worker adds 10units to total output (his MPP), and they are sold
for ₦5 each, then the MRP will be ₦50. Hence, we say
MRPL : Marginal physical product x price of output per unit
A numerical example of marginal revenue product is shown in the table below
Table 2.1 Marginal Revenue Product of Labour Under Perfect Competition
Labour Capital Total Output Marginal Price per Unit Marginal Revenue
(Q) Units Product of Output (₦) Product (₦)
0 5 0 - 5 -
1 5 30 30 5 150
2 5 70 40 5 200
3 5 120 50 5 250
4 5 180 60 5 300
5 5 270 90 5 450
6 5 330 60 5 300
7 5 370 40 5 200
8 5 400 30 5 150
9 5 420 20 5 100
10 5 430 10 5 50
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 We are assuming in the example above that the firm is operating in a perfectly competitive market
such that the demand curve for finished output is perfectly elastic at ₦5 per unit.
 Marginal revenue product follows directly the behaviour of marginal physical product. Initially as
more workers are added to a fixed amount of capital, the marginal product is assumed to rise.
 However beyond the 5th worker employed, extra units of labour lead to diminishing returns. As
marginal physical product falls, so too does marginal revenue product.
For example the 5th worker taken on adds ₦450 to the total revenue, whereas, the 9th worker
employed generates just ₦100 of extra income.
The above may not hold where the firm is operating in an imperfectly competitive market where the
demand curve is downward sloping as shown in the table below;
Table 2.2 Marginal Revenue Product of Labour Under Imperfect Competition
Labour Capital Total Output Marginal Price per unit Marginal Revenue
(Q) Units Product of output (₦) Product
0 5 0 - 10.00 -
1 5 25 25 9.60 240
2 5 60 35 9.00 315
3 5 100 40 8.70 348
4 5 150 50 8.20 410
5 5 210 60 7.90 474
6 5 280 70 7.70 539
7 5 360 80 7.00 560
8 5 430 70 6.80 476
9 5 450 20 6.50 130
10 5 460 10 6.00 60
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In the table above, we can see that as output increases, the firm may have to accept a lower price per unit
for its product. This has an impact on the marginal revenue product of employing extra units of labour.
Once again though, a combination of diminishing returns to extra labour and a falling price per unit
causes marginal revenue product (eventually) to decline. In the example above, it starts to fall once the 7 th
worker is employed. MRP theory suggests that wage differentials result in part from variations in the level
of labour productivity and also the value of the output that the labour input produces.
2.2.3 Assumptions of marginal revenue productivity theory

The main assumptions of marginal revenue productivity theory of the demand for labour are:
 Workers are homogenous in terms of their ability and productivity (clearly unrealistic).
 Firms have no buying power when demanding workers (they have no monopsony power).
 Trade unions have no impact on the labour supply.
 The physical productivity of each worker can be accurately and objectively measured, and the
market value of the output produced by the labour force can also be calculated.
 The industry supply of labour is assumed to be perfectly elastic. Workers are occupationally and
geographically mobile and can be hired at a constant wage rate. This means that the marginal cost
of taking on extra workers is assumed to be constant.
The profit maximizing level of employment occurs when a firm hires workers to the point where the
marginal cost of employing an extra worker equals the marginal revenue product of labour. i.e. MC L
equals MRPL
Wage
The profit maximizing level of employment
rate
where Marginal Revenue Product of Labour
W2 equals the marginal cost of employing
labour
Marginal Cost of Employing Labour

We
W1
Marginal Revenue Product of Labour
E2 E0 E1 Employment of Labour
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Fig 2.1: Profit Maximizing Level of Employment

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2.2.4 Limitations of MRPL theory of labour demand
Measuring productivity: It is difficult to measure productivity because no physical output is produced or
the output may not be sold at a market price.
Pay award bodies: In some jobs, wages and salaries are set independently of the state of labour demand
and supply.
Self employment and directors’ pay: There are over three million people classified as self employed in
Nigeria. How many of them set their wages according to the marginal revenue product of what they
produce? And what of those people who have the ability to set their own pay rates as directors or owners
of companies? Is their pay justified on the ground of marginal revenue product?
2.3 Shifts in the Demand for Labour

A shift in the demand for labour is caused by every other factor affecting the demand for labour apart
from wage rate. The number of people employed at each wage level can change depending on a number
of factors. From the diagram below, we see an outward shift of the labour demand curve. The curve shifts
when there is a change in the conditions of jobs market.
Wage
Rate
E0 E1 Employment
Fig 2.2: Shift in Labour Demand
2.3.1 The determinants of the elasticity of the demand for Labour

When we look at the demand curve in the product market, its elasticity is important. Therefore, it is
important to assess what determined the value of the elasticity. We can also do the same thing with the
demand curve for labour. Remember that elastic demand curves are relatively flat, so for a given change
in the wage rate, the proportionate change in the demand for labour will be larger. Inelastic demand
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curves are relatively steep, so for a given change in the wage rate, the proportionate change in the demand
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for labour will be much smaller. Many of these determinants are similar in character to those for the
demand in the product market thus:
 Availability of substitutes: The more substitutes are available in terms of factor input (capital,
in particular), then the more elastic the demand for labour will be. Labour demand will be more
elastic when a firm can substitute quickly and easily between labour and capital inputs. When
specialized labour is needed, then the demand for labour will be more inelastic. For example, it
might be fairly easy to replace security guards with cameras, but a hotel will find it almost
impossible to replace hotel cleaning staff with machinery.
 Labour cost as a proportion of total cost: If labour costs are a small proportion of total costs
then the demand curve will be relatively inelastic. But when labour expenses are a high proportion
of total costs, then labour demand tends to be elastic.
 The derived demand factor: Since labour is a derived demand, it makes sense then that the
elasticity of demand for labour will be greatly affected by the elasticity of demand for the goods
that the labour is producing. If the product in question has relatively inelastic demand (e.g.
petroleum products) then the demand for those working in the industry will also be fairly inelastic
(e.g. workers at oil rig).
 The time factor: As with every elasticity, the longer the time period, the higher the value of the
elasticity. In this case, the longer the time period, the easier it is to substitute labour for capital.
Also, in the short term, employers may be bound by contracts which can make it very difficult for
a firm to vary the number of workers regardless of the wage rate. On the long run, though, the
demand curve will be more elastic.
2.4 Labour Supply

The supply of labour is the total number of labour hours offered for work at a given wage rate. This
concept assumes that: the backward bending labour supply curve shows how the change in real wage rates
affects the number of hours worked by employees. Labour supply curves are derived from the labour-
leisure trade-off. Work more, earn more but cut leisure. Real wage raises the opportunity cost of leisure
which workers enjoy. This is best captured thus: substitution effect (work more hours); and income effect
(buy more leisure). If substitution effect is stronger than income effect, labour supply curve will be
upward sloping. If beyond a certain wage rate the income effect is stronger than the substitution effect,
then the supply curve is backward bending.
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2.5 Determinants of Labour Supply
Labour supply is determined by many factors and premised on certain assumptions as discussed below:
 Labour supply is homogenous, such that the analysis of labour supply may vary according to
identifiable exclusive groups of workers in the labour market.
 People are already working the preferred number of hours and, therefore, only offer more hour
during a given time period exclusively because of higher wages.
 People are not pressured to offer labour services against their wish and can alter the number of
hours worked from zero to 24 hours a day.
 The price of leisure is the foregone wage to a worker. Thus, a rise in wage makes leisure to be
more expensive, inducing the worker to put in more effort. At the same time, an increase in the
wage rate increases income, which leads to increase in the purchase price of leisure, and a
decrease in hours of work.
Summary of study session two

Labour demand is the total amount of labour which an economy is willing to engage at certain
period of time at a given wage rate.
Labour supply is the total number of work hours which households are willing to offer at prevailing
market wage rate.
Competitive wage rate is similar wage paid by firms/businesses to attract required labour hour. Some
firms set competitive wage a little higher than what is paid by their competitors.
Marginal physical product as the extra physical product produced by an additional unit of labour is
used to determine the wage that should be paid to labour.
Marginal revenue product of labour is the marginal physical product of labour multiplied by
marginal revenue or commodity price in a perfectly competitive market where marginal revenue is the
same as price.
Marginal productivity theory built on certain assumptions among which are labour homogeneity,
output measurability, inability of labour union to influence employment, among others, suggests that
labour wage should be set equal to the value of marginal revenue product.
Extra units of labour lead to diminishing returns.
An increase in labour demand causes an outward shift to the labour demand curve while a decline
in labour demand causes an inward shift.
Wage elasticity demand for labour is the responsiveness of demand for labour when a factor input
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The number of hours an individual chooses to work out of the 24 hours a day is referred to as hours
worked by employees while leisure is hours individuals are not willing to supply for work. Hence,
there is inherent trade-off between leisure and hours of work since we are constrained by the
available time in each day.
The backward bending labour supply curve shows how the change in real wage rates affects the
amount of hours worked by employees.
Elasticity supply of labour measures the degree of responsiveness of a change in hours of labour
supplied to a change in real wage rate.
Self-assessment questions for study session two

S.A.Q.2.1
Explain labour demand and its determinants.
S.A.Q.2.2
Marginal revenue product theory is crucial to understanding of wage. Discuss?
S.A.Q.2.3
Briefly explain the determinants of elasticity of demand for labour.
S.A.Q.2.4
Supply of labour is directly related to wage. Discuss?
S.A.Q.2.5
In the discussion of labour supply, we set certain assumptions. What are they?
References
Amacher, R & Ulbrich, H, (1986); Principles of Economics, South-Western Publications Co.
Cincinnati,Oliso
Begg, D; Fischer, S & Dornbusch, F (2008); Economics: 9th Edition; McGraw-Hill, London.
Blundell, R & MaCurdy, T (2008); "labour supply,"The New Palgrave Dictionary of Economics, 2nd
Edition.
Cain, G (1976); "The Challenge of Segmented Labor Market Theories to Orthodox Theory: Journal of
Economic Literature, Institute for Research on Poverty Reprint no. 210.

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Umo, J.U, (1986); Economics; An African Perspectives, Johnwest, Lagos Nigeria.
Study Session Three
HUMAN CAPITAL
3.0 Introduction
Human capital as the stock of natural endowment, habits, skills and knowledge in a nation is instrumental
to the development of innovation and invention. It facilitates economic growth and development through
better/improved performance of physical capital (tools, machinery, and equipment)
Human capital development manifests in various forms of which education (formal acquisition of basic
knowledge); healthy balance, and the level of social interaction are the major elements.
Education affects human capital in diverse ways: work experience increases earnings at a decreasing rate,
rate of unemployment is negatively related to level of skills, individuals with more ability receive more
education than those with less, and educational attainment widens income disparity.
The cost of human capital consists of direct cost like tuition fees, books and supplies; and indirect
expenditures such as earnings foregone while the human capital investment is being made, as well as the
value of time that is taken from other endeavours. The activities involved in training and education is time
consuming as it literally precludes an individual from simultaneously engaging in other income
generating activities.
Learning Outcomes for Study Session Three

3.1 define human capital and explain human capital development;
3.2 discuss types of human capital;
3.3 state the effects of education on human capital;
3.4 discuss the cost of education; and
3.5 discuss the benefits of training.
3.1 Human Capital Development

Human capital plays an important role in economic growth. This is because it constitutes the most
valuable resource of a country; its absence gives rise to the non performance of physical capital (tools,
machinery, and equipment). Thus, economic growth is impeded. The dream of every country is to be a
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nation to reckon with globally, so, emphasis is placed on investment in human capital because it will go a
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Human Capital is the stock of knowledge, habits, social and personality attributes, including creativity,
embodied in the ability to perform labour so as to produce economic value. These resources are the total
capacity of the people that represents a form of wealth which can be directed to accomplish the goals of
the nation. Hence, human capital development is a concept in economics which involves developing
people’s dexterity, health, ideas, for the purpose of being productive in future which stimulates economic
growth. It involves equipping people through training, education, seminars in order to improve/enhance
lot of the nation in the nearest future.
3.2 Types of Human Capital Development
3.2.1 Education
Education is one of the most talked about type of human capital development due to the fact that educated
people are considered valuable additions to both the society and the work place by virtue of the
knowledge they have acquired which can help them develop business, the general society and the
economy at large. As such, most governments make it a priority to invest in education of their citizens
through the provision of subsidised tuition, funding, study loans and scholarships. This is essential as
incentive to study.
3.2.2 Health
The health component of the human capital development is very important because even when a person is
knowledgeable and skillful but still has a failing health, such person will not be able to effectively think
and discharge his duty. Therefore, provision of health facilities is essential for government to maximize
the social welfare of the citizens. The importance of this aspect of human capital development is related to
the fact that the healthier the individual, the more productive that individual will be.
3.3 Education and Human capital

The theory of labour supply assumed that labour is homogenous; that is, workers are perfectly mobile and
only one wage can prevail in the labour market. However, the labour force is diverse in nature. Thus, if
the assumption that labour is homogenous is relaxed, then questions regarding the differences in wage
rates, occupations or industry or employment at different levels can better be understood.
A simple economic analysis of the labour market reveals that:
 Earnings increase with work experience at a decreasing rate. Ordinarily, economic analysis
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would suggest that earnings and experience are to increase proportionately.

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 Rate of unemployment is negatively related to the level of skill. Thus, the higher the skill
level, the shorter the period or incidence of unemployment.
 Young people change jobs more often and receive more schooling and training on the job than
older people. Economic theory would not really discriminate about the value of education to
different levels of workers, since wage is expectedly determined under economic theory by the
interplay of demand and supply forces.
 In developing countries, firms often appear to treat their labour force with the pretension that
they (employers) know what is good as reward for their employees. In essence, interplay of
demand and supply of labour has little to do with the pricing and allocation of labour.
 Individuals with more ability usually receive more education than less able people.
 Dispersion in the earnings distribution within schooling groups tend to increase as the level of
education increases.
Notwithstanding the social value which may be placed on education, the human capital approach
emphasizes the monetary returns to education and training. It is not surprising that the principle of
financial decisions have been found very helpful in the economic treatment of labour supply. Hence, we
consider the costs and benefits.
3.4 Cost of Education

An investment may be considered as an expenditure that yields a flow of benefits which are realizable
over a period of time, usually a year. Technically, expenditures on training and education are investment.
At the level of individual and the family, expenditure on education as investment competes with
consumption and financial assets due to the scarce resources of the household.
The cost of human capital consists of direct cost, for instance, tuition fees, books and supplies; and
indirect expenditures such as earnings foregone when the human capital investment is being made, as well
as the value of time that is taken from other endeavours. The activities involved in training and education
are time consuming as literally literally preclude an individual from simultaneously engaging in other
activities. Since labour market participation is often regarded as the principal alternative to human capital
investment, this lost time can be valued in terms of the earnings that would have been received if the
person had been working rather than learning or acquiring knowledge.
In the case of on-the-job training, the indirect cost to the worker is the lower wage accepted during the
period of training. In apprenticeships, the wage of the apprentice is increased gradually as he learns the
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skills of trade.
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In an environment where there is a glut of skills in the labour market, employers may not be very
enthusiastic about employing skills that are somewhat below prescribed job requirements, preferring,
instead, skills that are job specific. This practice may make on-the-job training unattractive for employers
and therefore reduce the opportunity for workers to experience training of this sort. This practice will
consequently lead to hike in the cost of training, as persons who have or who believe that they have
already acquired job-specific skills may have to bear the cost of additional training at their own expense,
rather than the employer bearing such financial burden.
3.5 Benefits of Training

The following are some of the positive returns to education and training:
To the individual, a higher wage rate or salary may result from skill improvement through training and
education. This wage rate is higher than what the individual could possibly get had he not embarked upon
the human capital investment. Improvement in skill may have little or nothing to do with productivity.
But so long as the employer is willing to give an increase in the wage rate after training, there will be
benefits to the individual for having undertaken the programme of training.
To firms, benefits accrue in the form of an increased differential between the value of the workers’
contribution to the firm and the wage rate received by the workers. Thus, if training raises the productivity
of workers, firms’ productivity is increased. However, firms do not pass the entire value of this increased
productivity in the form of higher wages to their employees, so the difference between the enhanced
marginal product and the wage rate offered to the workers will be benefits to the firm providing or
funding the training of this type.
To the wider society, decision in situations involving say expansion of the local public school,
construction of general hospitals and the purchase of financial assets might be regarded as alternative
investments. Yet, being able to calculate the costs and returns to these investments using the human
capital approach will enable a better appreciation of the value of each alternative. The theory of human
capital brings out clearly the value of human capital to the individual and the firm involved.
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Summary of study session three
Human Capital is the stock of knowledge, habits, social and personality attributes, including creativity,
personified in the ability to perform labour so as to produce economic value.
Human capital development is a concept in economics which involves developing people’s skills,
health, ideas for the purpose of being productive in future as well as stimulating economic growth.
Education and health are two major elements in human capital development. The significance of both
cannot be overemphasized. Education equips labour with the right and competitive skills and knowledge
while health facilitates optimal performance at work place.
Cost of education includes tuition fees, books and other materials, earnings forgone, time and psychic
strain.
Benefits of education and training to labour or individuals include higher wage rate and other fringe
benefits.
To the firms, improved productivity resulting from training and education cannot be totally passed to the
labour thereby making the firms beneficiaries of increased labour productivity.
The theory of human capital brings out clearly the value of human capital to the individual and the firms
alike.
Self-assessment questions for study session three

S.A.Q 3.1
Human capital development is instrumental to economic growth and development. Discuss?
S.A.Q 3.2
What are the types of human capital?
S.A.Q 3.3
Discuss the effects of education on human capital.
S.A.Q 3.4
What are the costs of education?
S.A.Q 3.5
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What are the benefits of training?

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References
Akangbou, D. S (1985); The Economics of Educational Planning in Nigeria, Vikas Publishing House,
PVT Ltd, India.
Cincinnati,Oliso
Familoni, K.A, (1990); Development in Macroeconomics Policy, Concept Publications, Lagos, Nigeria

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Study Session Four
THEORY OF WAGE DETERMINATION
4.0 Introduction
Several factors determine the price charged by labour for their services based on the interplay of supply
and demand forces which eventually determine the wage paid to workers. Minimum wage ensures that
wages paid to workers do not fall below a given amount. Minimum wage is usually above equilibrium
wage rate because it is usually fixed for the improvement of workers’ social welfare. It is obvious that
employment level falls when minimum wage is set though the extent to which it will reduce employment
depends on the elasticity of the demand for labour.
Inelastic labour demand curve will lead to an infinitesimal reduction in employment of labour while
elastic labour demand curve will bring about significant fall in employment level.
Wage differential, as the difference in wages between workers with different skills in the same industry
or among those with comparable skills in different industries or localities is mostly the result of
differences in workers abilities, competencies and the workers’ effort in performing the job. In addition,
risk-taking, poor working condition, difference in skills level, productivity, employer discrimination and
activities of trade unions are some of the factors that influence wage differentials.
Wage differentials can be determined via geographical divide and occupational bias. In the former case,
location is crucial while skills, safety of job, etc, are factors that influence wage differential in the latter
case.
Learning Outcomes for Study Session Four

4.1 explain wage determination;
4.2 discuss wage differentials; and
4.3 state and explain types of wage differentials.

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4.1 Wage Determinations
When workers sell their labour, the price they charge is influenced by several factors on the supply and
demand side. The interplay between all these factors determines the wage rates to be paid to workers.
The term minimum wage is a concept used in circumstances in which workers’ wages are not allowed to
fall below a given amount. It is often fixed by forces of national laws, or through employer-employee
negotiations or through statutory dispute settlement agencies.
s
Wage
Rate
w R
L
o
Units of Labour
Fig 4.1 Determination of Wage
The supply of labour is given as the curve LS, by imposing a minimum wage at OW, the effective supply
price for labour as seen by employers is WRS, for it now becomes illegal to pay less than OW.
Wage
Rate
SL L0; Employment in the absence
of minimum wage
Wm Lm; Employment with
minimum wage
Wm; Minimum Wage
Wo Wo; Equilibrium Wage
DL
Employment Level
Lm Lo
25
Fig 4.2 Minimum wage and Employment of Labour

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The minimum wage is usually above the equilibrium wage rate because it is usually fixed for the
improvement of workers’ social welfare. Fixing the minimum wage will automatically cause the
employment level to fall. From the graphical illustration above, it shows that when a minimum wage is
set, employment level falls from Lo to Lm. Furthermore, when minimum wage is fixed, the extent of
reduction in employment level depends on the elasticity of the demand for labour curve.
When the demand curve is inelastic, fixing of minimum wage will lead to a small, almost negligible
reduction in the demand for labour. However, when the demand curve is elastic, placing a minimum wage
will lead to a large and significant reduction in employment of labour.
An increase in the minimum wage will automatically lead to increase in the numbers of workers available
for work. If the workers are in surplus (i.e. S L>DL ), wages will fall until the equilibrium wage is
restored.
4.2 Wage Differentials

The wage paid to workers varies greatly. These wage differentials are mostly the result of differences in
workers ability and the workers’ effort in performing the job. Wage differential is the difference in wages
between workers with different skills in the same industry or between those with comparable skills in
different industries or localities.
Factors explaining wage differential include;
 Compensating differentials−higher pay as a reward for risk-taking, working in poor conditions

and having to work overtime.
 Difference in accumulated human capital: wages and salaries should help in compensating
people for making an investment in education, training, etc.
 Different skill levels: the gap between poorly skilled and highly skilled workers gets wider.
This is because the demand for skilled labour grows more quickly than the demand for semi-
skilled workers. This pushes up the average pay of the skilled workers.
 Difference in productivity and revenue creation: workers whose efficiency is highest with
ability to generate revenue should be rewarded with higher pay.
 Employer discrimination: this is a factor that cannot be ignored despite pay legislations put in
place by government.
 Trade union protection: many workers in low paid jobs do not have trade union acting on their
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behalf to protect them from the power of employers.

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4.3 Types of Wage Differentials
4.3.1 Occupational wage differential

Certain occupations pay more than others. Surgeons make more money than teachers. Most of these wage
differentials are the result of educational and training requirements, often referred to as human capital.
Education and training limit the supply of labour in that they take a certain amount of time to complete
and require a certain level of skill. In many cases, people who attend college or training school do not
have the time to do a full time work. Therefore, they also incur an opportunity cost which is equal to the
amount of money that they could have earned had it not been for the education and training requirement.
Another primary factor that determines the wages is the demand for the worker, which is a derived
demand for the product or service that the worker provides. If the worker provides a product or goods that
are highly desirable, then a higher wage will prevail for a given supply of workers who could do that job.
4.3.2 Compensating differentials

A compensating wage differential or an equalizing difference is defined as an additional amount of
income that a certain worker must be offered in order to motivate him to accept a given undesirable job,
relative to other jobs that workers could perform. Some jobs pay more because they are less desirable.
They may be hazardous, dirty, and unsafe. On the other hand, one can also speak of compensating
differential for an especially desirable job, or one that provides special benefits, but in this case the
differential would be negative; that is, a given worker would be willing to accept lower wage for an
especially desirable job, relative to other jobs.
The idea of compensating differentials has been used to analyze issues such as the risk of future
unemployment, the risk of injury, the monetary value workers place on themselves, and in explaining
geographical wage differentials.
4.3.3 Geographical wage differentials

There is a wide literature dealing with geographical wage differentials. Following the neoclassical
assumption of clearing labour markets, where there is a more attractive area to live in and if labour
mobility is perfect, then more and more workers will move to this area which in turn will increase the
supply of labour and in turn depress wages. If the attractiveness of that area compared to other areas do
not change, the wage rate will be set at such a rate that workers would be indifferent between living in
areas that are more attractive but with a lower wage and living in areas which are less attractive and with a
higher wage. Hence, a sustained equilibrium with different wage rates across different areas can happen.
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Summary of study session four
Minimum wage ensures that wages paid to workers do not fall below a given amount. Minimum wage is
usually set above equilibrium wage rate. Inelastic labour demand curve will lead to an infinitesimal
reduction in employment of labour while elastic labour demand curve will bring about significant fall in
employment level.
Wage differential is the difference in wages between workers with different skills in the same industry or
among those with comparable skills in different industries or localities.
Occupational wage differentials occur as a result of educational and training requirements, often
referred to as human capital essential to perform some core professional jobs.
A compensating wage differential or an equalizing difference is defined as an additional amount of

income offered in order to motivate labour to accept a given undesirable job, relative to other jobs that
workers could do.
Geographical wage differentials simply refer to sustained equilibrium wage in different locations.
Self-assessment questions for study session four
S.A.Q 4.1
Minimum wage is usually set above equilibrium wage. Discuss.
S.A.Q 4.2
What is wage differential? Explain the factors that influence wage differentials.
S.A.Q 4.3
Discuss the types of wage differentials.

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References
Alger, D and Cain, G (1977); “Statistical Theories of Discrimination in Labour Markets” Industrial and
Labour Relations Review Institute for Research on Poverty Reprint no. 211.
Cincinnati,Oliso
Assar, L. & Dennis, J. S (1986); "Wage Setting, Unemployment, and Insider-Outsider Relations,"
American Economic Review, 76(2), pp. 235-239
Folawewo, A (2007); Macroeconomic effects of minimum wage in Nigeria: A general equilibrium
analysis. Paper presented at CSEA conference 2007. Oxford, 19-20 March 2007
Hicks, J (1963); The Theory of Wages: 2nd Edition. Macmillan, London.
Ohio
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Study Session Five
MOBILITY OF LABOUR
5.0 Introduction
Labours usually move from one firm or industry to the one with better terms and working conditions.
Mobility of labour explains the ease at which workers are able to move around within an economy and
between different economies. We examine labour mobility from two broad perspectives: as switching
from one job to another with different roles and responsibilities; and as moving from one geographical
location to another. Geographical mobility of labour refers to a worker’s ability to work at a particular
physical location while occupational mobility refers to the movement of workers from one occupation to
another. Labour mobility facilitates efficient allocation of resources and drives innovation.
Major determinants of labour mobility include educational attainment, level of training, existence of
social bond, means of transportation and communication, industrial development, massive trade
development, among others. On the contrary, forced unionization, dearth of infrastructure, strong family
ties, all forms of discrimination, and lack of access to formal education as well as access to modern
trainings, can impede the ease at which labour moves.
Learning Outcome for Study Session Five

5.1 Define mobility of labour;
5.2 Highlight the types of labour mobility;
5.3 Discuss the factors that determine mobility of labour;
5.4 Highlight the obstacles to labour mobility.
5.1 Mobility of Labour

It is obvious that labour is the most important factor of production. Similarly, mobility of labour is one of
the most topical issues in the discussion of labour economics. Why is labour so emphasized while
analyzing factors of production? We extensively emphasize labour because as human, his decisions to sell
his services for a pay to the firm or industry where his skills will be used are determined by economic and
non-economic factors. More so, labour switch from one employment to another whenever jobs with better
terms and conditions appear. Mobility of labour refers to the ease with which workers are able to move
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from one job to another within an economy and between different economies. It is an important factor in
the study of economics because it examines how labour affects economic growth and production.
Why does labour mobility affect production and economic growth? In answering this question, production
cannot take place without the participation of labour in the process. Even in the most advanced nations
with sophisticated technology and tools, labour still need to operate those machines otherwise their
usefulness is questionable. In the banking sector, a lot of services that used to be performed by human
beings have now been replaced with computers. ATMs proliferation allows us to transfer and receive cash
without visiting the banking hall. The humble truth is, computers and ATMs do not operate themselves
but by human beings. If the skills and expertise required for producing certain goods and services are
lacking or inadequate in the industry, production will be impeded and this will have negative impact on
the industry performance as well as contribution to the GDP. Take a case of an accomplished mechanical
engineer who switches from his core engineering to the banking sector after passing his CIBN, at the
initial stage, his contribution to the banking sector cannot match with his contribution to science and
technology because he still needs some years to develop the competence required to excel in his new job.
Now, if the engineering field where he left finds it extremely difficult to replace his skills and
competency, production equally slows down and the economy is negatively affected.
5.2 Types of Mobility of Labour

There are two primary types of labour mobility namely, geographic and occupational. Human beings by
nature are prone to changes and labour is not exempted.
5.2.1 Geographical mobility of labour

Geographical mobility of labour addresses workers ability to work at certain physical location, that is,
when a worker moves from one place to another within a country or from one country to another. The
quest for ‘greener pasture’ or better living condition is the main reason for labour to move from one
location to another. Since 1970s, we have seen massive movement of workers from other parts of Nigeria
to Lagos State and now Port Harcourt, Abuja and a host of other fast developing cities. It is more
interesting to discover that some workers even initiate such moves without receiving any job offer from
businesses in these cities but believe that opportunities abound there and their chances of securing a better
job are very high. So they trade off their present jobs in the less developed communities and become
frictionally unemployed for a perceived good life in the horizon. In recent years, we have seen Nigerians
that are gainfully employed here in Nigeria but quit their jobs and auction their assets in order to travel to
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America, Europe or Asia in pursuit of better jobs. In the above analysis, economic factors drive labour to
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move from one location to another. Nevertheless, geographical labour mobility can result from social
bonds we have built and security challenges in certain location. Consider a young woman with a good job
and bright career prospect. If she gets married to a young man in another city, she may have no option but
to switch from her present job to another job in the location where her husband resides, so as to keep the
family bond. Security challenges equally trigger geographical labour mobility. In Nigeria, multitudes have
quit their jobs in Borno, Yobe, and Adamawa by relocating to other parts of Nigeria where security of life
and property can be guaranteed.
5.2.2 Occupational mobility

In economics, we consider occupational mobility of labour as the movement of workers from one
occupation to another. In dissecting occupational mobility of labour, we examine human beings as
dynamic socio-economic agents; they continually seek for knowledge, develop new skills and business
methods that will enable them function in new roles and positions. Also, they continually seek for better
job offers in industries where they believe they have developed competence to deliver results.
In furtherance of our discussion, we study occupational labour mobility as horizontal and vertical
mobility.
Horizontal mobility
Horizontal mobility is the movement of labour from one occupation to another in the same grade or level.
This implies that a worker may have to perform similar tasks in his/her new job as they were in his/her
previous engagement. As a bank clerk, core duties include filing, handling of petty transaction, recording
of data, sorting of document, etc. Suppose such worker receives job offer and moves to a law firm as a
clerical officer, horizontal mobility of labour has taken place since such worker assumes same position in
the law firm as in the bank; obviously, he/she may have to perform similar responsibilities.
Vertical mobility
In discussing vertical labour mobility, we examine the case of a worker of a lower grade and status in an
occupation who moves to another occupation in a higher grade and status. As earlier hinted, the
propensity for a better living condition is one major cause of labour mobility. Cases of vertical labour
mobility abound here and there. For the sake of this study let us consider few examples. We see vertical
labour mobility as when a school teacher becomes a university lecturer; an auditor in auditing firm
becomes a bank Chief executive officer; or a clerical officer in management consulting firm becomes
chief accountant of human resources company. The common denominator of vertical labour mobility is
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the fact that w worker assumes higher grades and as such will have to perform new roles and
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responsibilities, lead a team of employees, coordinate and supervise department(s) and make strategic
decisions.
5.3 Factors Determining Mobility of Labour

It is seemingly incomprehensible for labour to move from one location to another or just switch from one
job to another job without compelling reasons. Factors which border on economic and social aspects of
individuals lifestyle trigger labour mobility. We will discuss the salient ones under this sub-section.
1. Education and training: The level of educational attainment usually determines the extent to
which one will consider switching jobs. In other words, mobility of labour depends on the worker’s
academic degree, extent of training and membership of professional institutions.
Education and training enable labours to hone their expertise and as such become invaluable assets to
businesses. The more a person is educated and skilled, the greater are his likelihood of moving from one
occupation or from one place to another. How does this happen? As lecturers in the tertiary institution, an
individual that has acquired his Ph.D degree has a better chance of receiving offers from various tertiary
institutions in need of his services than an M.Sc degree holder. Likewise in the financial sector,
individuals with CFA, MBA, Ph.D and DBA will definitely be highly sought after in the industry globally
because of the skills and training they have acquired which can be used to improve business performance.
Another twist to this analysis is that, many individuals may be unwilling to pay the price (monetary and
psychological) for the attainment of higher education and training which makes the very few that embark
on such quest better off in terms of demand for their services that will outstrip supply; thereby bringing
about excess demand. Hence the price of such category of labour increases far beyond the equilibrium
wage.
2. Social set-up: Labour as human beings are dynamic by nature. The social ties we build determine
a number of our decisions. In a society where joint family system is preponderance, less labour mobility
takes place. Why? Individuals who enjoy the luxury and comfort of being in the midst of their siblings
and relations prefer these social benefits to economic gains in terms of higher wage which may take them
thousands of kilometers away from their comfort zones. Another reason for less labour mobility in this
society is the perceived security which togetherness naturally breeds. On the contrary, in a society where
joint family system does not exist, labour mobility is high. You may be tempted to ask why? Logically,
when nothing but the rewards for the jobs undertaken bind individuals to a particular environment or
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organisation, they are more likely to relocate or move to another organisation at the slightest improved
rewards all things being equal.
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3 Means of transportation: Excellent means of transportation and communication encourage labour
mobility and vice versa. This is because the worker knows that he/she can communicate or travel back
within the country or globally with ease and safety. In Nigeria, the advent of GSM and internet
penetration allows husband and wife to work at different states that may even be thousands of kilometers
apart. They anchor their decisions on the fact that they can communicate with one another at the tap of
their phones or punch of keys on their PCs. In addition, the improved air transportation system reduces
the social cost of working a distance from where one’s family resides since in less than three hours, one
can connect with any part of Nigeria. Similarly, well developed transportation and communication means
have increased trans-border labour mobility.
The elimination of global transportation and communication bottlenecks has made it easeful for
individuals to be at home away from home. For instance, from the comfort of your home, you can call
your loved ones anywhere in the world. This has necessitated labour to consider job offers from foreign
countries.
4. Agricultural development: In less developed countries like Nigeria where rain crop farming is
high and irrigation practices are very poor, labour moves from high population to low population areas
during planting and harvesting seasons. Even in societies where irrigation facilities are well developed
and farming is practiced all the year round, the chances of labour moving from certain areas to where high
commercial farming activities take place are high.
5. Industrialization: Industrial development no doubt is a necessary condition for economic

development. In the first instance, it has huge probability to create lots of jobs, generate wealth and
redistribute income. Industrial development equally enables a nation to be self-sufficient, and reduces
importation at least if it cannot increase exportation. During European industrial revolution, workers
moved from different occupations and places to work in factories. Industrialization also leads to
urbanization thereby facilitating rural-urban migration. In 1960s and 1970s when Nigeria experienced
massive industrial and manufacturing expansion, there was massive movement of rural dwellers to urban
centres. Most of these rural dwellers were farmers who abandoned farming to take up available factory
jobs.
6. Trade: Exchange of goods and services as commercial activities is a major determinant of human
and vehicular traffic. The development of business and trade leads to the spread of offices and institutions
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related to them in different parts of the country and in other economies. As a result, workers move from
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one place and occupation to another to work in trade and business offices, banks, insurance companies, oil
companies, etc.
7. Advertisement: Advertisement relating to jobs in newspapers, on the radio and television

determines mobility of labour. Similarly, increasing development of social media, internet connectivity,
applications and tools enable workers get information about job openings anywhere in the world. Hence,
they can apply for such jobs and when better offers occur, they move from one location or occupation to
another. For instance, a worker in Sokoto State, through these advertisement channels can be aware of job
openings in Lagos; apply for such job; undertake online test; do necessary assessment and even take
telephone interviews. The interesting aspect of this is that such individuals may not need to travel to
Lagos until the recruitment exercise is over and job offer made.
5.4 Common Obstacles to Worker Mobility

The worker mobility is best evaluated by the lack of obstacles to such mobility. Globalization has no
doubt broken barriers to international trade and opened up new businesses across the globe, facilitated
global competitiveness, enabled firms to increase their performance and encouraged labour to improve
productivity; all these make labour mobility less difficult. Despite these factors that facilitate and equally
encourage labour mobility, certain impediments still exist side by side. Some of these obstacles could be
personal (i.e. location, physical and mental ability) and systemic obstacles (i.e. laws and political factors).
Below are certain obstacles to labour mobility.
1. Minimum wage law. Minimum wage is usually set in order to ensure workers are not exploited
and that their living condition is at minimal acceptable level. This is convincing as well as encouraging. In
the instance where minimum wage laws set the wage above equilibrium wage for certain industries,
employers of labour may seek other means of getting workforce to carry out production process. Some
workers will be willing to accept job offers below the minimum wage when labour supply exceeds
demand. With the full implementation of minimum wage laws and adequate machinery to enforce
compliance, workers that are willing to accept below minimum wage may be prevented and their chances
of moving from one occupation or location to another are hampered.
2. Presence of forced unionization: The lack of free rule-to-work, which implies labour being
forced to join trade unions that exist in their chosen field, profession or industry, inhibits labour mobility.
We know that trade unions usually like to close-shop, that is, force all workers that fall under the category
they act on into becoming union members. Hence, workers may turn down job offers in organization or
location where the same trade unions exist. Another way in which forced unionisation obstructs labour
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mobility is a situation in which a worker has right to choose whether to become union member or
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otherwise in his present firm. When better wage paying job in another organisation but with forced
unionisation occurs, the worker may be unwilling to switch occupation.
3. Inadequate infrastructure and housing to accommodate fast moving changes in labour demand.
Decision about where to work or who to work for is not a function of wage alone. Workers consider good
road network, state of electricity supply, adequate provision of pipe borne water and housing as core
determinants of where to work. In Nigeria, some workers will not work in Lagos even if the wage they are
being offered doubles their present remuneration because of the fast and hard city life.
4. Binding ties (i.e. family) to a geographic location: where individuals value the bond they share
with their family members or ancestral location and will not break it for all the wage, pay package or
career benefits in this world, labour mobility is obstructed.
5. A worker’s lack of education or access to education: education enables individuals to sharpen their
skills and hone their expertise; hence their employability is improved. Increasing demand for highly
skilled workers is due to their level of educational attainment. However, for individuals with basic or no
formal education, limited job offers await them. In addition, being aware of the fact that they can be easily
replaced at even lower wage, unskilled workers sit-tight on any occupation they have even amidst naked
exploitation by their employers.
6. Government mandates on industry labour standards e.g. license requirement or registration of

business. Certain laws and requirements prevent businesses from expanding by opening offices in other
parts of the country thereby obstructing willing labour that would have been transferred to such location.
7. Unemployment benefits that de-motivate workers from accepting employment at clearing market
rates. Where unemployment benefits is encouraging, labour may choose not to work at the equilibrium
wage or accept job offers miles away from their place of abode since they can still hold on to the
government welfare package.
8. Discrimination based on gender, race or social class. When workers feel their human dignity is not
appreciated based on their colour, gender or social class, they may choose not to work for firms or at the
locations where they are not respected. In some other countries, discrimination could even be based on
citizenship or national origin.
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Summary of study session five
Mobility of labour examines the ability of labour to move from one occupation or location to another.
Labour mobility is believed to have impact on efficient resource allocation and encourages innovations.
Geographic labour mobility refers to a worker’s ability to work in a particular physical location. That is,
when a worker moves from one place to another within a country or from one country to another.
Occupational labour mobility refers to the movement of workers from one occupation to another.
Horizontal labour mobility as type of occupational mobility of labour refers to movement of labour
from one occupation to another in the same grade or level.
Vertical mobility as the other type of occupational mobility of labour is a situation when a worker of
a lower grade and status in an occupation moves to another occupation in a higher grade and status.
Factors that encourage labour mobility include but not limited to level of education and training, social
bond, means of transportation and communication.
Forced unionization, dearth of infrastructure, family ties, discrimination based on social class, workers
lack of educational access hinder ease of labour mobility.
Self assessment question for study session five

S.A.Q 5.1
What do you understand by labour mobility?
S.A.Q 5.2
Discuss the types of labour mobility.
S.A.Q 5.3
Mobility of labour does not just occur, certain factors trigger it. What are these factors?
S.A.Q 5.4
Labour may decide not to change occupation or move from one location to another. Under what
circumstances will labour likely make this decision?
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References
Cincinnati,Oliso
Bairoch, P. (1975); The Economic Development of the Third World since 1900, Methuen & Co Ltd,
London
Jhingan, M.L, (2010); International Economics, Vrinda Publications (P) Ltd. Delhi, India
Ohio
Ubeku, A. K (1975); Personnel Management in Nigeria; Ethiope Publishing Corporation, Benin City,
Nigeria

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Study Session Six
TRADE UNION
6.0 Introduction
Trade union is an organisation of workers who have come together to achieve common goals. Trade
unions, sometimes referred to as labour unions, fight on behalf of their members against unfair treatment.
Many of its goals centre on improving the living standard of their members. Trade unions collectively
bargain on behalf of their members on general conditions of employment. These include wages, work
rules governing hiring and firing, and promotion of workers, benefits, work place safety and policies.
They dialogue with employers/management on how to reach harmonious ends but when this instrument
fails, they resort to threat and eventually call workers out of work. Unionism started in Britain during the
Industrial revolution.
In Nigeria, public sector unions are represented under the umbrella of the Nigeria Labour Congress
(NLC). The NLC was established to propagate and protect both specific and general interests of the
Nigerian workers.
In this study session, we will discuss the whole gamut of trade unionism. In the course of our discussion,
we will use trade union and labour union interchangeably.
Learning Outcomes for Study Session Six

6.1 define trade union;
6.2 highlight the types and objectives of trade union;
6.3 discuss the origin of trade union;
6.4 explain trade union movement in Nigeria; and
6.5 discuss the merits and demerits of labour union.
6.1 Meaning of Trade Union

Labour union is an organisation of workers who have come together to achieve common goals such as
protecting the integrity of the union, achieving higher wages and benefit, and ensuring improvement in
the working condition of its members. Labour union is otherwise called trade union. The labour union,
through its leadership, bargains with the employer on behalf of union members and negotiates labour
contracts with employers. The most common purpose of these associations or unions is maintaining or
improving the conditions of employment. This may include the negotiation of wages, work rules, rules
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governing hiring, firing and promotion of workers, fringe benefits, work place safety and policies.
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By definition, trade unions are organisations that “stand for” the working population or people at work in
public and private parastatals. “Stand for” here means representatives of the union meeting with
management/employer on behalf of members or a group of staff on a wide range of issues bordering
generally on wages, terms and conditions of employment. Labour unions are voluntary association of
employees as well as employers formed to protect and promote the interest of their members but non-
members can equally benefit from their activities. According to Stiglitz (2012) “Trade union is an
association of wage earners for the purpose of maintaining or improving the conditions of their
employment.”
Trade unions appear to be the most suitable groups for balancing and improving employer-employees
relationship. Trade unions have enjoyed tremendous growth as a result of the rapid industrial development
which began in Europe in 1750s. The workers with one voice assemble to maintain and improve their
bargaining strength on wages and working conditions. In industrially developed countries, trade unionism
has made enormous positive impact on the social, political and economic life of their members. These
benefits equally spill over to the entire citizenry.
6.2 Types and Objectives of Trade Union

Let us briefly examine different types of trade unions as they appear in most economics literature. Trade
unions manifest in different forms and kinds as follows:
1. Craft Union: This is an organisation of a particular section of skilled workers.
2. Industrial Union: A cross section of workers from various trades within a particular industry.
3. General Union: This is the organisation of all types of workers with different skills across many
industries. The Nigeria Labour Congress (NLC) is a good example of general union.
6.2.1 Objectives of trade union

The ultimate aim of trade unions is the protection of their members from workplace exploitations.
Protection in this context implies:
i. They ensure workplaces are safe and that people’s health are not being put at risk or jeopardized
through their jobs. Besides, it means legal protection─trade unions usually engage legal
practitioners to make sure that companies and organisations comply with labour laws to the letter
while dealing with their employees who are union members.
ii. Trade unions aim to improve their members’ living conditions through improved remunerations. If
a single member of staff approaches management because he/she wanted pay rise, he/she is much
less likely to be successful than if every member of staff speaks as one through their trade union.
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This is the thrust of collective bargaining which connotes trade unions collectively negotiating
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better wages and working conditions on behalf of their members. Therefore, it is not uncommon in
several organisations or industries to find union members earning higher income than non-union
members.
6.2.2 Role of Trade Union

In line with the foregoing, we can unbundle trade unions main roles as follows:
1. Common voice: Trade unions speak on behalf of their members as one formidable voice. With this,
management/employers are left with no choice than to listen since it is the voice of majority.
2. Information bank: Trade unions provide necessary information, advice and guidance about work-
related problems to their members. This will enable such members avoid work place pitfalls which may
ruin their career.
3. Aids and support: Trade unions give necessary assistance to their members. These aids include on the
job training and re-training, insurance cover, financial services and legal advice.
4. Collective bargaining: With one voice, trade unions negotiate with employers to get improved pay for
their members as well as better working conditions.
5. Fight labour exploitation: Trade unions vehemently oppose work-place exploitation through
campaigns, rallies, and demonstrations on certain issues like low pay, inhuman work rules and all forms
of discrimination and bullying.
6.3 Origin of Labour Union

The beginning of trade union can be traced to 18th Century in Britain. Industrial revolution drew women,
children, more workers and immigrants into the workforce in their large numbers and put them in new
positions and roles. Trade union is sometimes seen as successor to the guilds of Medieval Europe though
with some conspicuous distinctions.
In the early days of unionism, there was stiff opposition from government and the bourgeoisie who
ensured that trade unions remain outlawed and illegal through enactment of the ordinance of labourers
in the Kingdom of England. In 1977, the passage of the combination act legally banned trade unions and
collective bargaining by British workers. Nevertheless, the unions expanded their activities in cities like
London and Luddism but were subjected to often severe repression until 1824 when the act was repealed
based on the sympathy for the plight of labour. In line with this, the first labour organisation which
brought workers from various organisations together was formed in 1810s. Likewise, general union of
trades also known as Philanthropic Society as the first general trade union in Britain was formed in 1818
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in the city of Manchester. Philantropic society was adopted in order to hide its real purpose since trade
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unions were still illegal. Mill (1871) in the principle of political economy wrote “If it were possible for
the working classes, by combining among themselves, to raise or keep up the general rate of wages, it
needs hardly be said that this would be a thing not to be punished, but to be welcomed and rejoiced at.
Unfortunately, the effect is quite beyond attainment by such means. The multitudes who compose the
working class are too widely scattered to all combine at all, much more to combine effectually. If they
could do so, they might doubtless succeed in diminishing the hours of labour, and obtaining that same
wages for less work. They would also have a limited power of obtaining, by increase of general wages at
the expense of profits.”
After many years of severe oppositions, trade union became legalised in 1871 following the establishment
of the Royal commission on trade in 1867 which agreed that the establishment of the organisation was to
the advantage of both employers and employees.
From then on, trade unions gained the momentum and became very popular not only in Britain or Europe
but in other continents. Unions acquired political power which eventually resulted in a body of labour
laws that not only legalised the organisation’s efforts, but codified the relationship between employers
and those employees organising into unions.
The largest trade union in the world is the Brussel based International Trade Union Confederation
(ITUC); this union has 309 affiliates with presence in 156 countries and a whopping 166 million
members worldwide.
6.4 Trade Union in Nigeria

In Nigeria, trade union movement started during colonial era. Unions in those days were built around
existing state and colonialist organisations. Trade unions were initially formed to match such unions in
other countries in West African sub-region; so the civil service union was established in 1912. Following
this development, Railway Native Staff Union was formed in 1919. Other unions that emerged were: The
Nigerian Mechanics Union, The Railway Loco Drivers’ Union, Motor Transport Union, among others.
In 1931, the railway workers and National Union of Teachers (NUT) were formed. However, these unions
were without any formal control until 1938 when machinery for such control was put in place.
In 1939, agitations for increased welfare package by various labour movements led to the formal creation
of department of labour, and staffed with senior administrative officers. Also, the Trade Disputes and
Arbitration Ordinances and the workers compensation ordinances were enacted paving way for collective
bargaining.
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By 1942, the atmosphere became conducive for collective bargaining leading to the fusion of all civil
service unions into the African civil service and technical trade so as to strengthen their positions.
Similarly, other unions merged to form the Federal Trade Unions of Nigeria with a blueprint of reducing
workers’ discrimination. This gave the federation main support and popularity in 1943 leading to the
emergence of Trade Union Congress (TUC).
The aims and objectives of the TUC shown in its constitution are stated below:
a. To unite all trade unions into one organised body;
b. To deal with general labour problem affecting workers in the whole country;
c. To protect the legal status and rights of trade union organisations;
d. To see to the proper organisation of trade unions;
e. To organise annually a congress of all trade unions; and
f. To establish a workers’ newspaper.
Prominent among the many activities of Trade Union Congress was the Great Strike of 1945. After
several agitations by the union, government refusal to shift ground and yield to the union’s demands led
to the union calling its members out of work for 45 days. Though the strike was declared illegal, the
severe economic consequences were irreversible. The strike also had negative consequences on labour
movement in Nigeria as it initiated divisions among unions’ leaders. The division led to proliferation and
emergence of several unions. The increasing union numbers was not the problem but the internal
wrangling, struggle for power and horse trading among various union leaders cast smear on the basic
thrust of trade union and what they claim to represent.
In order to streamline trade union activities, the trade union decree of 1973 was promulgated. The act
defines trade union as unincorporated association of which the most important element is the purpose
defined by the union rule book. However, the act forbids any unregistered organisations from operating as
trade union in Nigeria.
The continued struggle for power and recognition among labour leaders led to the division and emergence
of four central labour unions. These were Nigeria Trade Union Congress (NTUC), Labour Unity Front
(LUF), United Labour Congress (ULC) and Nigeria Workers Council (NWC). Having realised the impact
of divided voices, labour unions’ leaders devised a strategy to harmonise labour movement. The direct
result of this move was the formation of Joint Action Committee (J.A.C), which had such appeal to all
workers that the two week strike organised by the body recorded great success. Sooner than expected,
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things fell apart again with the four central unions existing side-by-side until 1978 when the Nigeria
Labour Congress (NLC) was formed thereby ending long decades of rivalry, schism and rancour
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involving the four centres and unions affiliated to them. The unions, numbering over 1000 were also
restructured into 42 industrial unions.
In Nigeria, public sector unions are represented under the umbrella of the Nigeria Labour Congress
(NLC). Similarly, NLC participates in private sector employer-employees negotiations that generally
concern terms and conditions of employment. The NLC was established to propagate and protect both
specific and general interests of the Nigerian workers. Naturally and in view of the difficult task of
negotiating and efforts to work out the best deal and packages for its members, any approach or demand
by NLC from employers of labour in Nigeria are most times perceived to be confrontational.
The organisation has gone through thick and thin in the pursuit of its core objectives. During the military
era, the Nigeria Labour Congress (NLC) suffered dissolution of its national organs and consequent
appointment of state administration to take over. The second military intrusion was in 1994 during the
regime of General Sani Abacha, whose government also became fed up with the labour movement
agitation for the restoration of democracy. Like the initial case, the military government dissolved NLC’s
National Executive Council and appointed a sole administrator. Similarly, the same treatment was meted
to the two unions in the oil and gas industry: National Union of Petroleum and Natural Gas Workers
(NUPENG), and Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN).
Consequently, the administrators apparently were curses to labour unionism in Nigeria by plundering the
finances of the two unions. The dissolution exemplified the travails of congress, its leadership, affiliates
and state councils, under military rule.
Furthermore, arbitration, prolonged and unlawful detention of labour leaders, invasion and disruption of
union meetings, seminars and other activities of congress and its components by security forces and a
vicious anti-labour campaign by the state were the hallmark of those periods. The military also invoked its
legislative prerogatives to unleash all manner of legislation to check the activities of unions. For instance,
Gen. Abacha, issued a decree that banned a section of the movement from holding leadership position in
congress. However, labour unions regained their freedom after the death of Gen. Abacha. Following that
development, the National Delegates Conference was held on January 29, 1999.
The following organs administer congress:

 The National Delegates Conference
 The National Executive Council (NEC)
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 The Central Working Committee (CWC)


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The National Administrative Council (NAC)

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The Secretariat oversees the daily operations of congress and executes the policies and decisions of its
organs. A general secretary oversees the secretariat, assisted by deputy and assistant general secretaries,
who run the departments.
Though individual workers can choose whether to join labour union or not, some group of public sector
workers cannot belong to any union in Nigeria based on the nature of their job. They are:
i. Members of the Armed Forces and the Police;
ii. Employees in:
 The prisons department;
 Customs Preventive Service;
 The Nigeria Security Printing and Minting Company Limited;
 The Central Bank of Nigeria;
 The Nigeria External Telecommunications Limited; and
 Employees in every federal or state government establishment, where such employees are
authorised to carry arms.
6.5 Merits and Demerits of Labour Union

 Labour union provides members with the opportunity to access the benefit of collective
bargaining.
 Labour union shields workers from exploitation and victimization by management i.e. lack of
adherence to labour laws, unfair dismissals.
 Labour unions assists members by offering them educational programmes that expose them to
their rights both in the work place and at homes.
 In some instances, labour unions provides its members with legal assistance during
disciplinary matters or legal suits.
 Labour union also negotiates wage and salary with employers
6.5.1 Demerit of labour union

Labour unions are not the final line of protection in labour related issues. Therefore, as much as they
provide their members with legal, financial and labour advice, they have disadvantages. Among the major
ones are as follow;
 Collective bargaining by labour unions can sometimes lump all workers, both productive and
unproductive, thereby inhibiting hard-working individuals from being rewarded appropriately.
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 By nature of labour union involvement or participation, workers tend to become more critical
and conscious of management methods and activities. This could possibly hinder their chances
at training and promotion, especially if these are solely at management decisions.
 Cost of productivity and loss of employment can be disadvantageous. Specifically, if unions
strike, a lot of man-hours are lost in the process and the employer may fire some key workers.
Also where union demands are increasingly high, employers may opt to shed-off excess staff
and in turn employ even less workers as a result.
In concluding this study session, Stiglitz (2012) asserted that “strong unions have helped to reduce
inequality, whereas weaker unions have made it easier for CEOs, sometimes working with market forces
that they helped shape, to increase it”
Summary of study session six

Trade unions as organisations defend their members against perceived workplace exploitation by the
employers and ensure that their members get fair deal in the course of their job.
The establishment of the Royal commission on trade gave unionism needed boost in their quest for a
favourable working condition. The commission gave trade unions the needed legal backing in the pursuit
of their objectives.
International Trade Union Confederation (ITUC), based in Brussel, Germany, remains the world’s
largest trade union with presence in many countries.
The Nigeria Labour Congress (NLC) as the umbrella body for all trade/labour unions in Nigeria
represents employees especially those in the public sector. The formation of the Nigeria Labour Congress
ended many decades of division and rancor among various unions in Nigeria.
Self-assessment question for study session six

S.A.Q 6.1
Trade unions are voluntary organisation which defend their members. Discuss.
S.A.Q 6.2
How do trade unions pursue their objectives?
S.A.Q 6.3
Industrial Revolution was instrumental to the emergence of trade unions. Discuss.
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S.A.Q 6.4
Highlight the history of unionism in Nigeria.
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References
Cincinnati,Oliso
Fajana, S (2000); Industrial Relations in Nigeria: Theory and Features. Lagos: Labofin and Co. Lagos.
Frenkel, S. & Peetz, D. (2000); Enterprise Bargaining: The BCA’s Report on Industrial Relations Reform.
Journal of Industrial Relations, Vol. 32, No. 1 p.69-69.
Hollander, S. (1985); The Economics of John Stuart Mill, University of Toronto Press
Lansbury, R. & Macdonalds (1998); Workplace Industrial Relations, Oxford, Mellourne.
Metcalf, D. (1997); Union Presence and labour Productivity in British Manufacturing Industry. British
Journal of Industrial Relations, Vol.28, No.2 p 249-66
Schwartz, P. (1972); The New Political Economy of J.S. Mill, Duke University Press
Stiglitz, J .E (2012); The Price of Inequality: How Today’s Divided Society Endangers our Future (kindle
locations 1148-1149). Norton. Kindle Edition.
Nigeria
Ubeku, A K. (1983); Industrial Relations in Developing Countries: The Case of Nigeria. Macmillan Press,
London.
Webb, S. & Webb, B (1919); Beatrice. Industrial Democracy. London: Longman S. GREE and Co.
Webb, S. & Webb, B (1920); History of Trade Unionism. Longmans and Co. London.
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Study Session Seven
COLLECTIVE BARGAINING
7.0 Introduction
Collective bargaining is a process through which employers and unions arrive at an agreement concerning
terms and conditions of employment. It is simply the process by which employers and unions representing
workers come to the table to negotiate terms and conditions of employment. As a global tool, it is used to
resolve industrial disputes between employers and unions which usually represent the entire workers. The
implication of this is that individuals cannot negotiate their own contracts. As an alternative, the union
negotiates as a collective body on behalf of all members. Unless there is clause in a collective agreement
or a law that states otherwise, management has the exclusive power to enforce its own workplace rules
and policies. Hence, unions achieve rights and benefits through collective bargaining. Under the Nigeria
industrial law, only registered trade unions can participate in collective bargaining.
However, many collective agreements which result from collective bargaining are not legally enforceable
as contracts, but can be included in workers handbook which can change from time to time.
Learning Outcomes for Study Session Seven

7.1 discuss collective bargaining;
7.2 explain how collective bargaining affects non-union workers;
7.3 explain the preparation for negotiation;
7.4 discuss collective agreement; and
7.5 highlight debate against collective bargaining.
7.1 Collective Bargaining

Collective bargaining is a negotiating tool between employers and trade unions on behalf of employees
who are unions’ members towards reaching favourable terms and working conditions with a view to
averting industrial disputes.
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7.1.1 Meaning of collective bargaining
Basically, collective bargaining is an exercise of power. It entails persuasive arguments, thorough
research, and convincing presentations. In addition, capable negotiators are an important factor that leads
to good collective agreements; however, a determined and unified membership that is willing to engage in
job action is the most critical factor in achieving gains in bargaining.
Collective bargaining examines negotiations about working conditions and terms of employment between
the employer and a group of employees; or one or more employers’ associations on one hand and one or
more organisations representing the workers on the hand, with a view to reaching mutual agreement. In
many countries (including Nigeria), it is only duly registered trade unions for the category of workers
whose working conditions are being negotiated that can participate in collective bargaining process.
With unions in operations, business managers collectively bargain on matters such as remuneration
including a schedule of increase based on position and experience (i.e a cost of living allowance that
automatically adjusts wage rates upward when there is inflation), hours of work, allowances for weekend
shifts, rate of payment for jobs with additional responsibility, work place health and safety as well as
other conditions of employment. These agreements usually govern all present and future workers.
Collective bargaining therefore presupposes the willingness of employers to resolve terms and conditions
of employment by negotiation with trade unions.
However, we must clarify on issues upon which collective bargaining can be done. There are employment
issues which are at exclusive reserve of management/employers. Hence employment issues are
categorised as negotiations and consultations.
It is an international best practice that not all demands brought by workers are negotiable since employers
have certain exclusive rights on how to manage their businesses. Usually, the employees’ handbook will
define certain items that are reserved exclusively for negotiation and some others that are for consultation.
Items for negotiation include wages, hours of work, leave and leave allowance, overtime pay, etc while
those for consultation where parties do not negotiate but only discuss include recruitment, promotion,
discipline, suspension, training, firing, some aspects of welfare and safety.
Workers cannot embark on strike actions or shut down production on matters that are only discussable or
consultative but only on negotiable matters. Unions have the machinery that enables workers register their
grievances whenever their rights have been trampled upon. According to the British labour law where
labour movement is very strong, collective bargaining agreements are usually not legally enforceable by
sanctions as contracts but only “binding in honour.” Therefore, it imposes moral burden on the parties to
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the agreement to ensure total enforcement of the agreement.

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7.1.2 Machinery for collective bargaining
Public sector is supposed to have the standing machinery to examine the terms and conditions of
employment of the workers in the public sector and take accurate actions when necessary. In Nigeria
however, this instrument has been ineffective thereby necessitating government to rely on wages and
salaries commission report for wage legislation. Under normal circumstances, this commission uses
certain criteria such as the cost-of-living index.
One of such commissions was the Morgan Commission of 1964 which made the following
recommendation as reported herein:
Our terms of reference require us specifically to consider
the question of machinery for reviewing wages on a continuing basis.
But the evidence before us convinces us that it will be realistic
and inadvisable to fashion out a machinery of such limited
application, because of the close inter-relationship between wages
and other conditions of employment. We have, accordingly, come
to the conclusion, as already stated, that the whole machinery of
industrial relations in Nigeria for settlement of the levels and
structure of remuneration and of conditions of service, as well as for
the settlement of labour grievances and trade disputes in general
should thoroughly be reviewed in the light of the prevailing
circumstances of the country.
Similarly, the Adebo salaries and wage review commission of 1971 recommended the setting up of a
public service review commission. The acceptance of the recommendations of Adebo’s commission led to
setting up of the Udoji public service review commission.
Udoji commission of 1974, recommended among others, the setting up of a unified grading and salary
structure (UGSS) which would embrace all posts in the civil service from the lowest to the highest (grade
levels 01 – 17).
To address the disparity in public and private sector remuneration system, the Allison Ayida Panel of
1994, observed that the gap between the public and private sectors pay package was as wide as 300 to 500
percent, in favour of the private sector.
This reality made the vision 2010 committee of 1997, to suggest a harmonized salary package for the
public and private sectors. The report of the committee, therefore recommended “substantial upward
review of wages and salaries; minimum wage and an adequate reward system that could sustain an
average worker and which would not be eroded by inflation at any time. It equally recommended a review
of salaries and allowances every two years, based on cost of living index to promote comparability of
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remuneration with the private sector.

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It equally recommended the payment of generous housing allowances, to enable civil servants rent
adequate accommodation and reduce their continual demand to live in government quarters. It also
recommended the provision of assistance in the education of workers’ children by paying allowances on a
maximum of four children per family until they graduate from secondary school.”
In the private sector however, inadequate machinery for voluntary collective bargaining automatically
empowered the minister for labour to establish a Wage Board whose function is to assume the
responsibility of well constituted voluntary collective bargaining machinery. Also, individual companies
usually have their own instituted collective bargaining organ.
7.1.3 The process for collective bargaining

The outcome of effective collective bargaining framework is robust and enforceable agreement. That
being the case; then, what will constitute this process? Let us consider a few of such:
Open-mindedness: There must be open mindedness on the part of the union and management. Each
party must be ready to shift position when convincing proposals are offered by the opposite side.
Experience: When union leaders that have gained substantial experience in resolving industrial disputes,
lead union team; and management/employer is represented by well experienced personnel managers,
agreements are reached with unprecedented speed with both parties keeping focus on the bone of
contention and avoiding totally unrelated issues.
Practicable agreements: A purposeful and fruitful collective agreement must be implementable.
Gigantic agreements that are not workable and practicable will defeat the essence of initiating the process
of collective bargaining.
7.1.4 Stages in collective bargaining

Experience as a very important skill in collective bargaining comes with practice from several interactions
with labour unions. Human resource manager or whoever leads management team must do a thorough
survey of salaries, fringe benefits and other employment policies adopted in similar organisations; by
presenting these facts, union may be convinced to shift ground on some of its demands.
Empirical and verifiable facts should be used to set the agenda for negotiations. This agenda must be
arranged in a manner in which items that border on wage increment are treated last since wage increment
will likely affect all categories of workers. For instance, if unions present the following demands:
1. Wages to be increased by 100 percent;
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2. Drivers should earn accident-free bonus;

3. Leave allowance to be increased for all workers by 10 percent;
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4. No overtime working without union management; and
5. Number of years in service should be pre-requisite for promotion.
It will be stupid on the part of the management to start with item (1) above because it concerns all workers
and the union will not shift ground easily. They may not be critical about issues that concern a small
fraction of workers.
To create an amiable atmosphere in which fruitful negotiations can take place, the items can be discussed
as follows:
1. Number of years in service should be pre-requisite for promotion;
2. No overtime working without union management;
3. Drivers should earn accident-free bonus;
4. Leave allowance to be increased for all workers by 10 percent; and
5. Wages to be increased by 100 percent.
Having explained how agenda should be arranged, the next step is to discuss how negotiation process will
start. The process simply begins with union presenting its demands by the union’s spokesman. Then,
concessions are made by both parties. Normally, negotiations last more than a day so there must be room
for adjournment and break. Besides, union representatives/leaders may request for time to take proposals
to their members for their views and opinions after which they will get back to the management. This
usually provides impetus to reaching agreement and conclusion.
7.2 Non-union Workers and Collective Bargaining

Collective bargaining agreement may not be binding on non-union members except when it is expressly
stated in their terms of work. Therefore, collective agreements have no automatic effect on individual
contracts of employment. Non-union members however can equally benefit from negotiated agreements.
In organisations where non-union members benefit equally from collective agreement, they are usually
compelled to pay union dues. Whenever collective terms have been smuggled into terms of employment,
implied or incorporated, it is reasonable to assume that such incorporation applies to all workers of that
category covered by the collective agreement, and not just to the union members. The position however
differs when the agreement explicitly states that the union is negotiating on behalf of its members only.
7.3 Preparations for Negotiation

Before going to the table for negotiation, management/employer must critically examine the situation as
well as the items submitted for negotiation before meeting with the union representatives. One of the
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tricks played by union is using sentiments to cover up real issues; this is a trap which management must
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avoid. Since sentiment has failed to achieve much, unions now rely on verifiable facts and figures to
support their claims as against using sentiments. The cost-of-living index, as a yardstick for measuring
workers standard of living and welfare, is one prominent parameter employed by the unions.
For the unions to arrive at a favourable agreement, they must discuss demands of their members in detail.
That is, they will begin with very huge demands and glide down slowly. Management having realised this
strategy wait patiently for them before reaching a reasonable agreement.
A times, union will deliberately introduce items for future negotiation and as such give management hints
on what their future demands will entail. In line with this, management may yield to some labour
demands just to save face, prevent embarrassment and avoid industrial actions like strike, protest, etc
Nevertheless, when negotiation reaches deadlock or the collective agreement breaks down with each party
sticking to its guns, both parties will be left with no option than to change positions, give in on some
demands so as to reach quick and workable agreement.
7.4 Collective Agreement

Collective agreement is the outcome of collective bargaining. It is usually binding in honour and not
legally enforceable in many countries. For instance, it is legally enforceable in France but not in the UK
and USA. Hence, there are two main types of collective agreement namely: acknowledged agreement and
the practical agreement.
7.4.1 Acknowledged agreement

These include agreements that are granted according to the provision for such. The provisions of
acknowledged agreement cover matters that do not generally change from time to time but explicitly
states the principles and procedures that guide the relationship between the employer and the union. Some
of these provisions include:
 The company recognising the position of the union as the agent for collective bargaining on
wages, hours of work and other conditions of employment.
 The union recognises the exclusivity and supremacy of the firm. This implies that certain issues
are not negotiable.
 The parties agree that the national council shall continue to run on the basis and with the
understanding that the company and the union shall maintain and successfully enforce the
resolution. No industrial action shall take place until procedures for settling industrial disputes
have been fully exhausted and that security staff shall not embark on strike, protest, go-slow, and
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any other form of industrial demonstration.

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7.4.2 Practical agreement
These are agreements which mainly concern the terms and conditions of employment. These agreements
cover wages and salaries, including incentive schemes; hours of work and overtime rates of pay, shift
work and shift pay; annual leave and leave allowance; and sick leave and leave pay. This is where
management exclusive rights of running their firms are sometimes eroded by unions which desire to
negotiate on any item even the ones made for consultation only.
7.5 Collective Bargaining Criticism

Collective bargaining is arguably a potent tool for resolving industrial dispute. It has worked reasonably
well in resolving industrial dispute. However, disagreements, deadlocks and walkouts do occur in most
cases before mutual and workable agreements are reached. Here, we examine arguments for as well as
criticisms against collective bargaining.
Cost effectiveness: It is mostly seen that collective bargaining is cheaper than other forms of regulation
since its cost is borne by employees and employers themselves and not the state. Major criticism against
this point is the cost on the community which may be higher than that of other methods since the
community will have to sponsor two groups during the negotiations which may last longer than imagined.
Efficiency: Collective bargaining is seen by many as more efficient than other methods of controlling
labour contracts because the workers and their employers concerned in a trade union are more likely to be
experts in industrial resolution than outsiders whether acting as arbitrators or as government mediators.
This is unarguably true but there is need for high level of intricacies, technical experience and tactical
approaches on the part of the union officials and the employers. However, when these professional
qualities are lacking, the efficiency of collective bargaining becomes questionable.
Industrial harmony: In addition, collective bargaining is believed to produce mutual and harmonious
relationship between employers and unions and as such leads to industrial peace. This assumption appears
false because collective bargaining involves threats of industrial action which generally lead to work shut
down and forceful disengagement of workers.
Democracy: Collective bargaining posits the principle of democracy which allows individuals to manage
their own affairs, provided they damage no important general interest. This argument is very difficult to
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counter because it avails workers and employers opportunity to gain substantial experience not only in
industrial dispute resolution but also in the area of competency and business management.
Equity: In conclusion, it is widely debated that collective bargaining guarantees equitable distribution of
income between wages and profits, more than individual bargaining will do. Collective bargaining equally
allows us to avoid a major problem associated with detailed wage legislation by arbitration in a relatively
unregulated market economy. The critique of this point says there is a constant conflict between the
principle of the employer’s ‘ability to pay’ and that of ‘fairness,’ that is, workers wanting improved living
standard. This throws up contradiction which is very difficult to resolve.
More so, the outcome of negotiation is usually determined by the bargaining skills in conjunction with the
strengths of the parties to the bargaining process and not reasoning.
Summary of study session seven

Collective bargaining enables unions and employers negotiate wage and other conditions of employment
with the intention of arriving at fair and workable agreements.
Only registered unions for the category of workers whose working conditions are being negotiated can
participate in collective bargaining process.
Items like wage increase, leave and leave pay are negotiable while items such as employment and
promotion are consultative.
Despite the argument against collective bargaining, it remains a formidable tool for resolving industrial
contention between employers and trade unions on behalf of workers.
Self-assessment questions for study session seven

S.A.Q 7.1
Explain the concept of collective bargaining.
S.A.Q 7.2
Discuss the procedure for sound collective bargaining.
S.A.Q 7.3
Highlight some arguments against collective bargaining.
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References
London
De Silva, S. (1996); Collective Bargaining Negotiations: International Labour Organisation Act/Emp
Publications.
Fowler, A. (1986); Effective Negotiation. Institute of Personnel Management, London
Hudson, M. & Hawkins, L.(1995); Negotiating Employees Relations: How to Negotiate in the New
Work- Place Environment. Pitman
Poole, M. (1986); Industrial Relations: Origins and Patterns of National Diversity. Routledge, London.
Mulvey, C. (1986); Alternatives to Arbitration: Overview of Debate, Unwin, Sydney.
Salamon, M. (1987). Industrial Relations Theory and Practice, Prentice Hall, London.
Nigeria
London.
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Study Session Eight
EMPLOYEE GRIEVANCES
8.0 Introduction
Grievances are seen as complaints and problems which workers raise with their employers. These may be
connected to how the employees have been treated or to actions which an employer is contemplating
taking. Employee may become aggrieved when the individual affected feels he/she does not get the
appropriate and deserved consideration from the right quarters. In most cases, aggrieved employees
cannot state categorically the factors responsible for their grievances. Investigations usually reveal that
most bases for employees’ grievances are domestic issues which are completely unrelated to work
environment. However, grievances may arise from implementation of the rules of engagement, especially,
which all workers are conscious of but because such individuals are adversely affected, it naturally breeds
grievances.
An experienced manager must be patient with the aggrieved workers so as to discover the main causes of
grievances. Hence, resolving them becomes easier.
Learning Outcomes for Study Session Eight

8.1 define employee grievances;
8.2 discuss individual grievances;
8.3 explain collective grievances;
8.4 highlight causes of disagreement between employers and trade unions; and
8.5 discuss the procedures for resolving employee grievances.
8.1 Employee Grievances

Grievances are direct result of dissatisfaction in virtually every sphere of life. Employee grievances are
activated when work environment becomes not very conducive in the view of the employees. Such
unpleasant circumstances may originate from management direct actions or due to their insensitivity to
the domestic plights of the workers, which may totally be unconnected to the job. No doubt, aggrieved
employees cannot work at optimal level since their morale is weakened, so employee grievances can be
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seen as industrial problem.

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Employee grievances are not the function of wage rate alone but many other factors that concern general
conditions of employment as well as individual personal challenges. More so, they range from
discrimination or victimisation in the workplace to more minor day-to-day clash of interest such as poor
relationship between two employees or a disagreement over holiday arrangements.
We must note that, the wage paid for a particular job is irrelevant so long as the workers doing the job feel
not fairly treated. We can equally say that, employee satisfaction is not a function of wages and fringe
benefits alone.
In addition, employee grievances can be real or imagined. To buttress this concept further, let us examine
Employee grievances as individual or collective grievances.
8.2 Individual Grievances

Individual grievances refer to one employee feeling aggrieved. This can happen due to change of
environment and lifestyle; personal or domestic issues that are totally unrelated to conditions of work. In
most situations, employees who have grievances do not know the direct causes of such grievances. Such
employee may give reasons which when thoroughly and patiently examined will show that grievances
come from frustration which in turn is a result of many factors that can only be identified by a skillful
manager. So, whenever an employee comes to his manager with a grievance, it is very necessary for the
manager to be patient and endeavour to devote some time so as to discover the remote and direct causes
of such employee’s trouble.
Generally, some of the factors that cause employee grievances include change of environment, domestic
problem which such employee tries to suppress but rather manifest in other forms without the employee
realising it. For instance, if an employee is harassed for not paying his/her house rent, such individual
may transfer such aggression to his employers saying if he/she had received enough remuneration, such
problem would not manifest. When complaining to the manager however, he/she may use other factors as
justification for his grievances.
8.3 Collective Grievances

This is a situation whereby more than one worker is aggrieved. It can emanate from the following sources:
i. Alleged maltreatment of a worker, who must be a union member; and
ii. Disagreement between the local union representatives and management over the interpretation or
non-implementation of the collective agreements.
By mal-treatment of a worker, we mean when management enforces certain rules that are defined by
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employee handbook. This usually occurs in the areas of disciplinary measures which may come in form of
issuing query for alleged breach of employment contract, suspension when indiscipline persists and
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eventual termination of appointment when it goes out of hand. Union officials see themselves as watch-
dogs of the rights of the employees. As such they must be consulted before any action that borders on a
worker’s right who is a union member should take place even if such decisions which are solely at
management discretion will aggravate such issues and label them as collective grievances.
Promotion is another cause of grievances among employees. Definitely, all employees cannot be
promoted at a time. Hence, when there are no opportunities for promotion in certain sections or
departments, whatever management does may trigger employee grievances. Besides, if a worker sees that
someone with lower qualification or that has stayed for lesser period in the organization has been raised
ahead of him/her, grievances may occur.
Remuneration and wage increment is one major source of grievances. In most firms, workers are very
much aware that annual increments are subject to performance and productivity of the workers for the
year under review. Nevertheless, employees are known to relate their non-award of annual increment to
management injustice and unfair treatment rather than their non-performance, even when the handbook
clearly defines the procedure for such awards.
8.4 Causes of Disagreement between Union and Management

Disagreement between union and management is a continuous occurrence. We discuss below some of the
causes of such disagreement.
Application of the rule book: In most organisations, work place rules are very clear and well defined.
However, when management uses the rules to correct misappropriate conducts displayed by the workers,
union sees it as intimidation and unfair treatment being meted out on their members. Hence, they will
complain to management/employer.
Bulky agreement which may result in unfulfilled agreement: The golden rule guiding collective
agreement is simplicity and clarity. Whenever agreements become too bulky and ambiguous,
implementation will always cause disagreement. We can see element of this in the last Nigeria federal
government-ASUU agreement. Most of the agreements signed by both parties were not well defined,
bulky and inconsistent with the economic realities of that period. Hence, government was unable to
implement critical parts of the agreement which resulted in a protracted academic strike.
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8.5 Grievances Settlement Procedure
In order to resolve employee grievances as quickly as possible, the following steps must be adopted.
Purpose: The purpose of the grievances must be properly defined. The solution to any problem begins
with proper identification of the problem. This will guide any actions towards resolving it.
Well defined procedure: It is important that employees have a course of action available, should they
have a complaint. Procedures are indispensable; this will ensure that all staff get the same treatment in
similar circumstances.
Confidentiality and impartiality: The process should ensure that a complaint is dealt with utmost
confidentiality. Procedures may specify that complaints should first be reported to the employees’ line
manager; there should also be the option of raising a grievance first with an alternative manager like the
human resource manager.
Time and speed: Employee grievances should not be allowed to spread because the multiplier effect may
be devastating so they should be settled immediately as they occur.
Chain of command: Those who are in the right line of authority only should settle employee grievances.
Involving union officials at the initial stage may do more harm than good to the issue.
8.5.1 Element of grievances procedure

Simple procedure: Keeping the procedure simple is fundamental to resolving employee grievances.
Employees will want to know who to report to when a particular problem arises, therefore in the
organisation’s chain of command, each individual should know who to report what to.
Time, distance and communication: Time is of essence in the settlement of grievances and unnecessary
delay can destroy human relation in the work place. In a large organisation with vast presence across, a
procedure that stipulates all grievances being directed to a manager at the head office, which is a distant
from where the grievances occur, will not achieve much. Similarly, there must be symmetrical
communication flow between managers and employees so as to detect any issues that may result in
grievances. Effective communication machinery will enable managers track grievances and solve them
before they escalate.
Urgency (speed): Urgency emphasizes that any action taken by managers empowered to solve grievances
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must be timely. Unnecessary delay may cause further industrial damage

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8.5.2 How to set up grievances procedure
Grievances procedure can be established as follows:
Through negotiations between union and management: When this happens, the procedure becomes an
integral part of the acknowledged agreements. Otherwise, the union may see the process as an imposition
and punitive on its members.
Grievances must be properly defined: Both parties must agree on what grievances mean so as to avoid
complications that may arise when people bring up issues that do not mean or imply grievance. A simple
definition of grievances could mean, a complaint by an employee against the company based on alleged
misinterpretation, misapplication or non-application of the terms and conditions of employment.
Summary of study session eight

Complaint is a means of expressing employee grievances. Sometimes, these grievances have no
correlation with job and condition of service. Grievances are rather used as a medium of venting one’s
anger and discontent on the managers. No matter the remuneration and fringe benefits, if the workers
doing the job are unhappy, grievances are embedded. Grievances must be properly defined so as to avoid
totally unrelated issues being labeled as such.
Keeping collective agreement simple and practicable is one way of identifying and resolving employee
grievances. Communication and time are of essence in addressing employee grievances.
Self-assessment questions for study session eight

S.A.Q 8.1
The main causes of employee grievances are usually unknown even to the employee complaining.
Discuss.
S.A.Q 8.2
Explain individual and collective grievances.
S.A.Q 8.3
Highlight some causes of disagreement between employers and trade union.
S.A.Q 8.4
Explain some grievance settlement procedure.
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References
Armstrong, M. (1992); Personnel Management Practice. Kogan Page Ltd, London.
Beach, D. S (1980); Personnel: The Management of People. Macmillan Publishing Company, New York.
Poole, M. (1986); Industrial Relations: Origins and Patterns of National Diversity. Routledge, London.
Nigeria
London.
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Study Session Nine
UNEMPLOYMENT ISSUES
9.0 Introduction
Unemployment is no doubt one major macroeconomic problem. A situation whereby able and willing
individuals cannot find job to do implies human resource loss. But some individuals may choose not to
work due to the terms and conditions of employment they defined as not suitable─this refers to voluntary
unemployment. Mainstream economists in explaining the concept use equilibrium unemployment to
buttress the point. Equilibrium unemployment also known as natural rate of unemployment is the
unemployment that is found in a normal functioning economy. At equilibrium, the only unemployment
that is present is voluntary. For instance, a change from one job to another is usually not instantaneous, so
some waiting must take place. Hence during this waiting period, individuals are temporarily unemployed,
it is tagged frictional unemployment. Also, when businesses and economy undergo changes, some
individuals will be out of job for a while which is referred to as structural unemployment. Cyclical
unemployment which can also be seen as demand-deficient unemployment arises when economy goes
through recession. The cost of unemployment is borne by the unemployed individuals in terms of forgone
income; and the overall society since skills and manpower of involuntarily unemployed are not put into
productive activities.
Global unemployment problem is at new record high with 201.8 million people jobless in 2013, that is, an
increase of about 5 million unemployed individuals in one year. In the same year, youth unemployment
rate increased to record peak of 13.1 percent; more than double the 6.1 percent rate for the whole
workforce and almost three times the adult rate of 4.6 percent.
Learning Outcomes for Study Session Nine

At the end of the study session, you should be able to:
9.1 explain theoretical meaning of unemployment;
9.2 discuss classical unemployment theory;
9.3 discuss Keynesian unemployment theory;
9.4 explain major types of unemployment;
9.5 define equilibrium unemployment;
9.6 explain the determinants of unemployment;
9.7 discuss the cost of unemployment; and
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9.8 explain global unemployment problem.

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9.1 Definition of Unemployment
9.1.1 Theoretical meaning of unemployment
Certain concepts are crucial to the understanding of unemployment, hence they must be explained so as to
make discussion of unemployment very clear and robust. First of such concepts is the labour force,
defined as the actual number of people available for work in an economy. The labour force of a country
includes total employed and the unemployed alike; to be counted as unemployed, individuals must
register with state ministry of labour or state agency charged with labour management responsibilities.
The US Bureau of Labour Statistics (BLS) defined labour force as “the number of individuals 16 years of
age and above, residing in the 50 states and the District of Columbia who are not inmates of institutions
(like penal and mental facilities, homes for the aged) excluding those in the military, who are either
employed or actively looking for work.”
Similarly, the World Bank in its definition says that the total labour force comprises people aged 15 years
and above who meet the International Labour Organisation (ILO) definition of active population, that is,
all people who supply labour service for the production of goods and services during a specified period. It
includes both the employed and the unemployed. Also, it includes all wage earners and job seekers while
homemakers and other unpaid caregivers and workers in the informal sector are excluded.
In line with this, Labour Force Participation Rate (LFPR) or Economic Activity Rate (EAR) refers to the
fraction between the labour force and the overall population of the same age range. We calculate labour
force participation thus:
Labour force participation rate = labour force X 100
(Total population over age 16)
As shown above, the participation rate is the number of people in the labour force divided by the size of
the adult civilian non-institutional population. The non-labour force therefore includes those who are not
looking for job, those who are institutionalised in prisons or medical facilities; as well as full house wives,
children, and those serving in the military.
Unarguably, unemployment is a very difficult nut to crack. Under this study session, we will examine the
views, opinions and conjectures of mainstream economists in trying to lay theoretical foundation in
explaining the concept. Unemployment is seen as involuntary situation which precludes individuals who
are not ready or willing to take up available jobs at current industry wage rate.
The stock of unemployed in a particular economy, simply referred to as unemployment level, is defined as
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the total labour force minus the number of people doing wage paying jobs plus entrepreneurs, that is, self-
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employed individuals. Similarly, unemployment rate is calculated by dividing the level of
unemployment by the labour force.
Unemployment rate = Level of unemployment X 100
Labour force
Likewise, we calculate employment rate as the number of people currently employed divided by the
labour force.
Employment rate = Level of employment X 100
Labour force
Employment level, unemployment level and labour force are stock variables because they are measured at
a point in time. Hence changes in the labour force will be due to flow variables such as natural population
growth, net immigration, new labour market entrants, and people retiring from the labour force. In a
similar vein, changes in unemployment depend on: inflows made up of non-employed people who begin
to look for jobs, the employed people who lose their jobs and look for new ones, and outflows of people
who find new employment as well as people who stop looking for employment. The level of
unemployment rises when inflows exceed outflows and vice versa.
Furthermore, several attempts by economists have been made to explain unemployment from two broad
divisions: voluntary and involuntary unemployment. Voluntary unemployment exists when a person
chooses not to work or accept job offer for which he/she is qualified at the going wage rate and conditions
probably because he has a means of livelihood other than paid employment. On the other hand,
involuntary unemployment occurs when a person or an individual cannot obtain work even if he is willing
to accept lower real wage or not very pleasant working conditions than similar qualified workers who are
currently in employment.
Thus unemployment is simply defined as:

a. a condition (being out of job);
b. an activity (searching for job);
c. an attitude (desiring a job under certain conditions);
d. and a need (needing a job).
9.1.2 Output and unemployment (The Okun's Law).

In its most basic form, Okun’s law investigates the statistical relationship between a country’s
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unemployment rate and the growth rate of its economy. This economic law probed lost national output
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when unemployment exceeds natural rate since output depends on the amount of labour used in the
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production process, so there is a positive relationship between output and employment. Hence, the total
employment equals the labour force minus the unemployed, implying a negative relationship between
output and unemployment. So reduction in unemployment rate is a function of economic growth but real
national output must grow beyond its potential level. This is the transmitting mechanism, to achieve a 1
percent decline in the unemployment rate in a year, real GDP must grow approximately 2 percent faster
than the rate of growth of potential GDP over that period. For illustration, if the potential rate of GDP is 2
percent, Okun’s law suggests real GDP growth rate of about 4 percent in one year in order to achieve 1
percent reduction in the rate of unemployment.
9.1.3 Inflation and unemployment (The Philips Curve)

Inflation as persistent and sustained increase in the general price level is measured as a percentage change
in a price index, such as the consumer price index. Inflation occurs when too much money is chasing few
goods and services. The most popular study which examined the connection between unemployment and
inflation is that of Philips (1958) who established an inverse relationship between unemployment and
inflation and that trade off exists between them, that an appeal to solve unemployment problem will
generate inflation and vice versa.
Phillips curve theory indicates that changes in inflation are influenced by the state of the economy
relative to its productive capacity, as well as to other factors. This productive capacity can be
measured by potential GDP, which is a function of the natural rate of unemployment─the rate of
unemployment consistent with full employment. The Philips curve (see the diagram below) which was
the outcome of his research of the American economy produced a negative or inverse relationship
between inflation and unemployment implying that any deliberate macroeconomic policy mix used in
curbing one will generate the other.
Philips Curve
Inflation
rate
0
Unemployment rate
The relevance and authenticity of Philips theory of inflation and unemployment trade-off has been
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criticised by numerous studies which proved that inflation and unemployment can increase
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simultaneously bringing about another concept known as stagflation discussed below. Other
investigations show that inflation and unemployment rate can equally fall together depending on the
causes of inflation. Probing that however is beyond the scope of this study.
9.1.4 Stagflation
Stagflation is a situation where the inflation rate is high, the economic growth rate slows down, and
unemployment remains steadily high. It therefore poses a dilemma for economic policy intervention since
actions designed to lower inflation may worsen unemployment, and vice versa. Therefore stagflation is
very difficult to end once it begins.
One major cause of stagflation is restriction on the aggregate supply. When aggregate supply is reduced,
output and employment fall simultaneously with price level rising. Similarly, increased money wages
reduce aggregate supply. If so, how will that affect unemployment and inflation? When real wage rises,
firms are forced to reduce production and employment, consequently, there is fall in real income and
consumer expenditure. Since the decline in consumption will be less than the fall in the real income, there
will be excess demand in the commodity market which will push up the price level. The rise in the price
level will reduce output and employment.
9.1.5 The natural rate of unemployment (NRU)

Natural rate of unemployment (NRU) refers to the unemployment rate that occurs in a normal functioning
economy. In every economy there is unemployment which is quite consistent with the normal functioning
of the labour markets. Economists however, differ in their views on what natural rate of unemployment
should be. This concept is nebulous because it is very difficult to know what a “normal functioning
economy” connotes. Nevertheless, the general view is that NRU is the average rate of unemployment
around which the economy fluctuates. Moreover, we can best think of the natural rate of unemployment
as the addition of the frictional and the structural unemployment. Estimates of the natural rate vary but is
usually put around 5 percent, although there are times when the actual unemployment rate appears to be
above the natural rate.
Labour market is always in disequilibrium since people are always out of job, school leavers enter the
labour market while some are continually switching jobs, and therefore NRU is essentially a long term
phenomenon which can be the rate of unemployment toward which the economy gravitates in the long
run, subject to the existing imperfections in the labour market which make it difficult for workers to find
jobs easily and quickly.
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9.2 Classical Theory of Full Employment and Unemployment.
In view of classical economists, full employment occurs at all times in the economy, to them full
employment is a normal situation in the economy. One of the prominent classicists, Pigou (1933) opined
that the tendency of the economic system is to provide full employment in the labour market.
Unemployment, therefore occurs when there is wage rigidity and interference in the working of free
market system usually caused by trade unions’ struggle for wage rise, minimum wage legislation, among
others. Full employment exists when all willing and able workers who are ready to sell their labour
services at present wage rate get engaged. Classical theory clearly states that those who are not prepared
to work at the existing wage are not unemployed but are voluntarily unemployed. Also, perfect free
competition will always adjust wage rates to be so related to demand that potential job seekers are
employed. This view on full employment is consistent with frictional, voluntary, and structural
unemployment which will be discussed in subsequent sections.
Moreover, competition in the labour market guarantees full employment in the classical model. At the
equilibrium real wage, no worker who wishes to work at the real wage rate remains unemployed. This
means that classical economists ruled out the possibility of involuntary unemployment. Nevertheless, if
real wages were placed above equilibrium, by the monopoly power of trade unions or minimum wage
legislation, then real wage rate would have to be reduced by cutting money wages. To the classicists, this
is the only panacea to unemployment problem.
9.3 Keynesian Theory of Full Employment and Unemployment

Keynes, like classicists, considers full employment as the absence of involuntary unemployment which
means full employment is a situation in which everybody who wants to work gets one. He assumes that
with a given organisation, equipment and technology, real wages and the volume of output are co-related,
so that, employment can only be increased when wage rate falls. To achieve full employment, Keynes
advocates an increase in effective demand to bring about reduction in real wages instead of money wages.
Demand-deficient leads to unemployment of labour in that people unemployed will be willing to work at
less than existing real wage. If effective demand increases, perhaps, employment level will go up at a real
wage equal to, or less than, the existing one, until a point comes, at which there is no surplus of labour
available at the existing real wage.
Keynes defines full employment in his “General theory of employment, interest and money;” as a
situation in which aggregate employment is inelastic in response to an increase in the effective demand
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for its output. Hence, if the supply of output becomes inelastic at the full employment level, further
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addition to effective demand will lead to inflation in the economy. Based on this view, we can say that
Keynesian concept of employment involves three conditions namely:
(i) reduction in the real wage rate;
(ii) increase in effective demand; and
(iii) inelastic supply of output at the level of full employment.
9.4 Types of unemployment

In economics literature, we examine three basic types of unemployment namely:
i. frictional unemployment;
ii. structural unemployment; and
iii. demand-deficient or cyclical.
9.4.1 Frictional unemployment

Frictional unemployment arises because it takes time and resources for workers to switch from one job to
another, either voluntarily or involuntarily even with appropriate job vacancies in existence which can be
found without the worker having to amend the broad occupational position or his reservation wage.
Individuals that are frictionally unemployed include people who find it difficult to secure job due to their
physical incapacitation. More importantly, it includes people spending short spells in unemployment as
they switch between jobs. Frictional unemployment denotes short-run job/skill matching hiccups which last
for short period.
9.4.2 Structural unemployment

Structural unemployment occurs when workers lack the qualifications, skills and expertise to perform core
roles and responsibilities of available jobs. More importantly, structural unemployment comes as a result of
certain factors including skills mismatch in the composition of labour demand, technological displacement
effect, living in highly volatile area, changes in the structure of wages in relation to the pattern of demand,
inability of indigenous companies to compete with foreign producers among others.
Structural unemployment is a long term unemployment unlike frictional which is short term. Basically,
structural unemployment reflects the time taken by workers to acquire new skills and learn business
methods required to perform modern jobs’ tasks. Hence it denotes long-run adjustment problems that tend
to last for years. Suppose a typist loses her job since computers are now used to type and design document
as against typewriters previously used. Such typist will need to undergo trainings in order to acquire
computer skills so as to adequately match available jobs requirements as well as perform new tasks. This
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will definitely take some time of which such a worker will be out of job.
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Certainly, structural unemployment is expected in a dynamic economy since there will be need for workers
to continually acquire modern skills required to perform newer jobs tasks in line with current reality and
technological advancement. Nevertheless, it is painful to the workers who experience it. In some ways,
those who lose their jobs, because their skills are inconsistent with available jobs, experience the greatest
pain. The fact that structural unemployment is natural and inevitable does not mean that it costs society
nothing. We will examine the cost of unemployment later in this study.
9.4.3 Cyclical unemployment

Any unemployment that is above frictional plus structural is called cyclical unemployment. Cyclical
unemployment refers to unemployment caused by business cycles. It is closely related to demand-deficient
unemployment and both terms are often used interchangeably. Businesses go through cycles more often
than desired due to the nature of business itself resulting in two extremes: boom and recession. The former
is more desired but the latter occurs more often than expected. In time of economic recession or doom,
demand falls consequently leading to shrinking revenue and profit, hence firms are left with no choice than
to cut their workforce in order to accommodate present realities. A cut in the number of workers will
definitely create demand deficient unemployment, since workers who lose their job cannot maintain their
consumption level due to lost income even with effective state welfare unemployment support scheme.
During recession, unemployment of labour and other resources increase while unemployment rate falls
when economy begin to recover.
Deficient demand unemployment occurs when there is insufficient aggregate demand to produce job for
the whole labour force no matter their level of trainings, skills and competence. Deficient demand results in
economic recession emanating from business bubbles, because deficient demand means low demand,
which results in low income (output), leading to low productivity, and this in turn will lead to high
unemployment as well as low employment opportunity. This cycle continues unless appropriate policy
intervention takes place. Circumstances under deficient demand unemployment can be summarised as
follows:
 Youth unemployment often increases the most during recession. Older workers may get disengaged,
but, the biggest burden is borne by young workers (especially new labour market entrants) who are
not being recruited since it is easier for firms to cut back on hiring new workers than retrenching
existing staff considering laws that govern hiring and firing as well as severance packages that must
be paid to workers during lay off when they have not breached their appointment contracts.
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 Slow economic growth causes unemployment level to rise. When the economy grows at a rate that
is less than labour force growth, it is very possible to have demand-deficient unemployment.
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 Hysteresis: high rate of long term unemployment reduces workers morale, confidence and self-
esteem. In addition, it may make people de-skilled and demotivated. Therefore, their prospects of
getting job in the future become very bleak.
Business cycle distorts equilibrium and until wages and prices have adjusted to their new long-run
equilibrium level, a fall in aggregate demand will reduce output and increase unemployment. Some
workers definitely want to work at the going real wage rate but cannot find jobs. Only when demand has
returned to its long-run level is demand-deficient unemployment wiped off.
Other types of unemployment include Seasonal unemployment which is unemployment due to the existing
high level of real wages or changing nature of the seasons; and
Technological induced unemployment is unemployment that arises when machines/capital are used in
place of men/labour in the production process. This is a regular feature of technologically advanced nations
especially Europe and America.
9.5 Equilibrium Unemployment

As hinted, equilibrium unemployment includes frictional and structural unemployment.
9.5.1 Labour supply and equilibrium unemployment
The diagram below shows the labour market. The labour demand curve DL slopes downward showing the
inverse relationship between wage rate and employment. The curve LF shows total number of labour force.
If real wage increases, the number of people wishing to work rises. LF curve steepness shows the labour
force (job seekers and employed) will always have quite large number of people irrespective of the
prevailing real wage rate.
The curve SL, shows how many people accept job offer at each real wage. This curve lies to the left of LF
because only the people in the labour force can accept job. Moreover, some workers are inevitably between
jobs all times. They switch to another job once they perceive the wage to be above industry average.
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SL LF
X Y
w2 Z
Real
wage
w* F
E
DL
N2 N* N1
Number of workers
Fig 9.1 Labour Market
The schedules DL, LF SL show labour demand, labour force size and labour
supply which is the number of workers eager to accept job offers at any real
wage respectively.
When the labour market clears at E, EF is the natural rate of unemployment
representing people in the labour force not ready to accept job offers at the
equilibrium wage.
If wage rises to w2, in the long run, there is disequilibrium at X, hereby
increasing natural rate of unemployment to XZ which is greater than EF.
From the diagram, labour market equilibrium is at E while equilibrium employment is N* with EF
representing equilibrium unemployment which is voluntary unemployment.
At equilibrium real wage w*, N1 people want to be in the labour force but only N* accept job offers while
the remainder consider the wage too low for their services. To illustrate this, suppose a skilled
stenographer earned ₦1000 a day before being retrenched as result of proliferation of computer usage for
typing document, the issue here is not why she lost her job but her refusal to take up a janitor job in an
eatery at a lower wage. Her old skill is obsolete and until she learns computer skills, janitor job may be
her only valued skills by the labour market.
Let us explain classical unemployment as follows: If unions through collective bargaining keep wages
above equilibrium level say w2, as shown on the above diagram, w2 is above w* so total unemployment
becomes XZ. XY people want job but cannot because firms can employ only workers at point X making
XY involuntarily unemployed. Since w2 is higher than w* based on human nature, workers will
collectively opt for w2 above equilibrium wage, consequently reducing employment. To the entire labour
force, extra unemployment is voluntary so, if w2 is maintained, the economy will operate at X; and XZ is
equilibrium unemployment.
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9.5.2 Demand-deficient equilibrium unemployment
Here, total unemployment can be divided into parts namely: the equilibrium or natural rate, as the
equilibrium unemployment decided by normal labour market operation, structural mismatch, unions’
strength and inducements in the labour market. Keynesian unemployment known as demand-deficient
unemployment is involuntary unemployment in disequilibrium which is caused by insufficient aggregate
demand and slow wage adjustment. With the aid of the diagram below, we explain how Keynesian
unemployment may emerge.
SL
LF
E
w* F
Real X
wage w** Z
DL
DL1
Employment
Fig 9.2 Equilibrium Unemployment

Suppose equilibrium level is E, if labour demand falls from D L to DL1. The
economy will move to point X, before price and wage adjustment occur while
EF is voluntary unemployment. Labour want to be at E at a real wage so, XE is
involuntary unemployment. If labour demand remains D L1, real wage will
eventually fall to w** to take equilibrium to Y.
From the diagram above, to begin with, labour demand DL, and the labour market are in equilibrium
unemployment EF. Then labour demand shifts down to DL1. Before wages or prices adjust to new
equilibrium, the wage will still be w*. At this wage, workers want to be at E while the firms want to be at
point X. XE measures demand-deficit unemployment involuntary caused by sluggish adjustment of wages
and prices whereas EF remains voluntary unemployment.
If labour demand remains at DL1, real wages must fall to w** in order to restore equilibrium at point Y.
So, by reducing interest rates, monetary policy can shift labour demand up to DL again and restore
equilibrium at point E. At point X, output and employment are low.
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9.6 Determinants of Unemployment and Policy Options
Causes of unemployment determine appropriate policy interventions that will solve the problem.
Theoretically, we examine causes of unemployment from two broad perspectives discussed below.
9.6.1 Demand-side unemployment

Unemployment is caused by demand side factors in Keynes view of unemployment. It then shows the
presence of spare capacity/unused resources and wasted output. To tackle the problem, policy that will
improve aggregate demand and boost labour demand must be put in place so as to mop up unused
resources, thereby increasing output and employment.
Wage adjustment could result in similar outcome but it may take longer period than imagined. Contrary to
this viewpoint is the situation where the economy is already operating in long-run equilibrium where
further demand growth will only distort equilibrium. Though unemployment is greater than zero, unused
resources are completely eliminated. At points E or Y in the above figure 9.2, all remaining
unemployment is voluntary.
9.6.2 Supply-side factors

If the economy starts with only voluntary unemployment, reductions in unemployment and increases in
output are mainly achieved by supply-side policies. These policies either shift supply schedules S L and LF
or they will reduce distortions that hinder the economy from getting to equilibrium points E or Y. We now
examine some of these supply side determinants in turn.
Whenever firms demand the skills that differ from what the labour force possess, skill mismatch occurs
and raises unemployment level. Obviously, labour market is not good at developing the skills and
competencies of individuals who step out of one job with the hope of stepping into another. If mismatch
becomes larger, workers have harder tasks to perform, and people probably will get stuck in
unemployment.
European government in solving this problem offered advice on how to get people back into work very
quickly. The policy had far-reaching outcome in the sense that it stopped people from being tagged
unemployable, thereby raising their morale and confidence.
Secondly, increase in unemployment benefits relative to wage rate encourages some workers to join the
labour force without genuine intention to search for job but to enjoy state largesse. Likewise, when
unemployment benefits are high, some people will remain unemployed for longer period looking for what
they consider as the right job.
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In tackling this, the state must put in place measures that will ensure unemployment benefits do not rise
more than necessary. Effectiveness of this policy in reducing unemployment is arguable because
empirical evidence shows that unemployment benefits did not increase sufficiently to explain the increase
in unemployment in UK in 1970s and 1980s. The state can also develop database that will categorise
workers according to their skills, qualifications and well-being. This will reveal workers that are
incapacitated but only registered so as to enjoy unemployment benefits. Deleting this set of people will
improve unemployment statistics though with unpalatable overall economic implications.
Thirdly, increasing trade union bargaining power and recognition from government ensures higher real
wage rate leading to involuntary unemployment. On the other hand, shrinking trade union power increases
the number of workers who accept job offers at equilibrium wage rate thereby reducing equilibrium
unemployment.
The vehicle for reducing trade union power and influence is privatisation of state owned enterprises which
will remove government as the last resort funder of union wage claims.
Globalisation equally increases competition and erodes most basis for union agitations.
9.7 Cost of Unemployment

Definitely, unemployment comes with a cost to the individuals that are unemployed and the larger
society. We use voluntary-involuntary unemployment dichotomy in discussing these costs.
9.7.1 Private cost of unemployment

When individuals are voluntarily unemployed, they show that they are better off unemployed than taking
immediate and available job offers at prevailing wage rate. The implication of this is that forgone wage by
not working (private cost of unemployment) is less than the private benefits accrued to the unemployed.
What could be these benefits?
First of such benefits is the “transfer payments” from government. In advanced countries, workers who
have contributed to the national insurance scheme get jobseeker’s allowance for the first 12 months after
becoming unemployed.
The other benefit is the worth of leisure. Some workers prefer to take leisure rather than work claiming
that leisure is worth more to them than the disposable real income earned by working.
Also, the prospects of getting better offers make some workers refuse job at current wage rate claiming
that what they stand to get in the future outweigh current forgone income.
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When people are involuntarily unemployed, the cost of unemployment changes. Involuntary
unemployment means people cannot get job due to excess labour supply.
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Finally, involuntary unemployment places more burden on involuntarily unemployed individuals and the
society will lose output they would have contributed to overall wellbeing.
9.7.2 Social cost of unemployment

The transfer payment given to unemployed individuals constitute a cost on the society without any
corresponding benefits since there is no economic value exchange. The justification for the payment
which anchors on equality and fairness can be questioned since the payment is not for the supply of any
goods or services which other members of the society may use, so it is deadweight. In a situation where
the private benefits exceed the social benefits, a larger number of workers may choose to be voluntarily
unemployed. It must be emphasized that the efficient level of voluntary unemployment is well above zero
so it may be counter-productive to embark on policies that will outrightly eliminate voluntary
unemployment.
9.8 Problem of Unemployment in the World

According to International Labour Organisation (ILO), official worldwide unemployment exceeded 200
million for the first time in year 2013. In its 2013 annual report, an estimated 201.8 million people were
jobless representing an increase of about 5 million people in one year.
Youths were the worst hit with 74.5 million people, aged 15–24 unemployed in 2013, that is, an increase
of more than 700,000 from the preceding year. Nevertheless, there were a staggering 37.1 million fewer
young people in paid employment in 2013 than in 2007. This result cast aspersion on capitalism and free
market operation in the sense that after almost six years of global meltdown, the youth unemployment rate
soared to record peak of 13.1 percent; more than double the 6.1 percent rate for the whole workforce and
almost three times the adult rate of 4.6 percent.
Youth unemployment and its scarring effects are particularly prevalent in three regions namely:
developed economies and Euro-zone, the Middle East and North Africa. In these regions, youth
unemployment rates have continued to rise since 2008. Euro zone is yet to come out of the wood fully,
despite various government stimulus interventions; in the zone, the percentage of people out of work is
still disturbing.
Youth unemployment increased by as much as 24.9 per cent in the developed economies and European
Union between 2008 and 2012. By 2018, the global youth unemployment rate is projected to reach 12.8
per cent, with growing regional disparities; as expected, improvements in advanced economies will be
counterbalanced by increases in youth unemployment in other regions, mainly in Asia.
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The increasing youth unemployment and falling labour force participation contributed to a decrease in the
global youth employment‐to‐population ratio which stood at 42.3 per cent in 2013, against 44.8 per cent
in 2007, and projected to be 41.4 per cent in 2018; the rising enrolment in education contributed to the
decrease so far.
Globally, the ratio of youth to adult unemployment rates hardly changed in recent years, and stands at 2.7
in 2013. Young people therefore continue to be almost three times more likely than adults to be
unemployed, and the upward trend in global unemployment continues to affect them more. In addition,
the proportion of young people not in employment, education or training (NEET) continued to escalate.
This damning situation will lead workers being forced into insecure and low-paid work, often without
access to social security or healthcare.
Even with these scary and disturbing figures, they indisputably underestimate the real level of global
unemployment, since they are based on official government statistics that do not count those who have
run out of jobless benefits in developed economies, or are working a few hours a week (underemployed)
or have stopped looking for work or those in the informal sector in the rural settlements. In explaining the
worsening trend, ILO invoked the term “jobless recovery.” It warned of even higher unemployment for
the next couple of years, amidst increasing corporate profits and stock market prices. Its projections
further exposed the myth of “recovery” being pushed by governments around the world.
Nonetheless, according to official statistics, global employment rose by a meagre 1.4 percent in 2013,
adding 40 million jobs, which failed to keep pace with the 42.6 million people expected to enter the
labour market every year. “As a consequence, the crisis-related global jobs gap, measuring the number of
jobs lost in comparison to pre-crisis trends, widened further to 62 million workers in 2013.” In addition,
23 million “discouraged workers” remained outside or dropped out of the labour force because of the
gloomy job prospects. By 2018, “the global gap is projected to rise to 81 million; this includes some 30
million discouraged workers who might never come back to the labour market.”
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Summary of study session nine
In a particular economy, people are either employed, unemployed or excluded from the labour force.
The level of unemployment rises when inflows to the pool of the unemployed exceed outflows.
For economic growth to bring about substantial reduction in unemployment rate, real growth must
double the potential growth of the economy.
The natural rate of unemployment as equilibrium unemployment is the equilibrium level of voluntary
unemployment consistent with normal functioning of the economy.
Stagflation occurs when slow economic growth which reduces employment and increases unemployment
is accompanied with high sustained increase in general price level.
When the level of unemployment rises, the average duration of unemployment increases.
Unemployment is classified as frictional, structural, cyclical or demand-deficient. In modern

terminology, unemployment is examined as either voluntary or involuntary.
Keynesian unemployment is involuntary and seen in the short run during economic recession. In the
long run, continuous increase in unemployment must reflect increase in the natural rate of unemployment.
That is, short-run changes can move the economy to a different long-run equilibrium. That is why most
recession seen across the globe increases equilibrium unemployment.
Supply-side factors are intended to raise equilibrium employment and potential output, and to reduce
the natural rate of unemployment. Some of the available supply-side policies are skills mismatch
reduction, curtailing union powers and influences, decrease unemployment benefits, retraining and
building work habit into the unemployed.
Hysteresis as high rate of long term unemployment reduces workers morale, confidence and self-esteem.
Voluntarily unemployed individuals reveal that the benefits from unemployment exceed the private cost
in wages forgone but society gets no output from transfer payments to support the unemployed; but when
workers are properly matched to jobs, society gains from increased productivity.
The cost of involuntary unemployment is more damning on the unemployed who prefer to work. It also
represents wasted output which these workers would have produced and added to the society at large.
The world is facing critical unemployment problem with young people being adversely affected.
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Self-assessment questions for study session nine
S.A.Q.9.1
What do you understand by the concept, ‘unemployment?’
S.A.Q.9.2
Compare and contrast classical view of equilibrium unemployment and Keynesian unemployment theory.
S.A.Q.9.3
Discuss the types of unemployment.
S.A.Q.9.4
Supply-side policies are crucial in addressing equilibrium unemployment. Discuss
S.A.Q.9.5
Unemployment constitutes deadweight on the involuntarily unemployed as well as overall society. Discus
References
Cincinnati,Oliso
Anyanwu, J.C. and Oaikhenan, H.E. (1995); Modern macroeconomics: Theory and Applications in
Nigeria, Joanee Educational Publishers Limited Onitsha-Nigeria.
London
Begg, D.; Fischer, S. & Dornbusch, F. (2008); Economics: 9th Edition; McGraw-Hill, London.
Harold, G .F (1982); Professionals in search of work: Coping with the Stress of Job Loss and
Underemployment: John Wiley &Sons Inc
Ohio

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Global Employment Trends (2013): International Labour Organisation.

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Study Session Ten
UNEMPLOYMENT IN NIGERIA: CAUSES AND SOLUTION
10.0 Introduction
Unemployment has been a major economic problem in Nigeria since early 1980s. The rate of
unemployment increased by almost 50 percent in early 1980s when compared against 1970 rate, and
continued to oscillate around 6 percent until late 1980s when government adopted Structural Adjustment
Programme (SAP) as policy option to solve the problem. Despite the obvious reality of unemployment in
Nigeria, underemployment which refers to disguised unemployment appears to be prevalent.
Unemployment and underemployment in Nigeria are usually explained under three variants thus:
insufficient job opportunity, inadequate income, and underutilization of human resources. Among many
causes of unemployment in Nigeria are corruption and infrastructural deterioration. Corruption as
dishonest behaviour in any form and kind has worsened abilities of businesses/institutions to create jobs
for the teeming labour force. No doubt, the comatose infrastructural state can be traced to prevalent state
of corruption. These factors in conjunction with others make the cost of doing business in Nigeria very
high relative to neighbouring African countries, where most manufacturing companies that used to
produce in Nigeria have relocated to. Acute poverty which resulted in escalating social vices, militancy
and recent terrorism can be traced to enormous joblessness across the country. Definitely, successive
governments have initiated one policy and programme at one time or the other to solve the problem but
the current unemployment rate of 23.9 percent, with youth unemployment put at about 50 percent, cast
aspersion on the performance and efficacy of these programmes. The general view is that, if Nigeria will
make any appreciable progress in reducing unemployment rate, corruption must be nipped in the bud.
Learning Outcome for Study Session Ten

At the end of the study session, you should be able to:
10.1 discuss past and present unemployment situation in Nigeria;
10.2 explain types of unemployment in Nigeria;
10.3 highlight causes of unemployment in Nigeria;
10.4 state the effects of unemployment in Nigeria; and
10.5 discuss possible solutions to unemployment problem in Nigeria.
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10.1 Unemployment in Nigeria
10.1.1 Overview of unemployment in Nigeria
Unemployment was never known to be a problem in Nigeria until the colonial era when rural settlers were
made to work in establishments owned by foreign/European companies. This made large number of
farmers in the villages abandon their long age vocation in search of paid job in these firms. In a similar
fashion, World War II and Nigeria civil war fighters upon their return, decided to settle in the cities rather
than return to rural settlements where they were recruited from. To them, farming was no longer lucrative
so they looked for better alternative in the cities; this was the beginning of rural-urban drift which is still
growing till date.
Undoubtedly, unemployment rate in Nigeria at the moment has exceeded all previous records especially
that of 1980s. Unemployment rate which was 4.3 percent in 1976 increased to 6.4 percent in 1980 causing
uproar in the polity. This was attributed to global economic depression of the late 1970s. Moreover,
Nigerian government policy of export restriction and overdependence of manufacturing industries on
imports for their raw materials, logistics and technology aggravated the situation.
To curb the menace, government stopped recruitment into civil service and disengaged 2, 724
and 6,294 from civil service in 1980 and 1984 respectively. Consequently, unemployment rate
fluctuated around 6.0 percent between 1980 and 1984 until 1987 when it rose to 7.1 percent.
We must emphasize that government was never watching aloof as the situation continued to grow out of
hand. Government eagerness to tame the monster and find lasting solution to the problem led to the
adoption of Washington consensus-Structural Adjustment Programme (SAP) which to an extent helped to
reduce unemployment rate which dropped to 1.8 percent in 1995, before rising again to 3.4 percent in
1996. Between 1996 and 2000, unemployment rate hovered between 3.4 percent and 4.7 percent and
finally settled at 2.3 percent in 2003 as the record low in this present democratic dispensation.
Unemployment has been a serious challenge in Nigeria since late 1970s but available reports from various
internal bodies (CBN, NBS, etc) and external bodies (IMF, WORLD BANK, ILO, etc) show that
unemployment level in Nigeria at the moment is worrisome and more endemic than any other period in
Nigeria’s chequered history.
National Bureau of Statistics put unemployment figure at 23.9 percent in 2013 with youth unemployment
at about 50 percent while statistics by the World Bank for same period put unemployment rate in Nigeria
at 22 percent, with youth unemployment rate at 38 percent. Furthermore, the World Bank report shows
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that 60 percent of Nigeria’s population comprise people within the age bracket of 15-35 years old,
generally referred to as youth; and the same age bracket constitutes 30 percent of the total work force.
Considering these figures, the question that comes to mind is why the nation is enmeshed in this
unemployment quagmire amidst strong economic growth experienced in these decades? In the course of
this study, we will probe the situation with the aim of providing reasonable answers.
No doubt, the level of unemployment in Nigeria is very precarious and the inability to manage the
situation can result in devastating economic and political crisis. The consensus is that unemployment is
truly on the high side in Nigeria notwithstanding the contradiction and unreliability of the official figures.
Unemployment problem in Nigeria can be summarized as follows:
1. Many people are frustrated by lack of employment opportunities; they include those without work
and those who have jobs but want to work longer hours or more intensively─a situation regarded
as disguised unemployment which is equally known as underemployment;
2. A large fraction of the labour force, both urban and rural, lack a source of income both reliable and
adequate for the basic needs of themselves and their dependents.
3. A substantial volume of unused and underutilised human resource abounds in Nigeria; these are
productive resources which ought to be brought into the employment circle.
10.1.2 Unemployment and underemployment in Nigeria

On broad view, unemployment entails underemployment. Hence underemployment is covert
unemployment. A prominent economist, Harold (1982) described “underemployment as when people are
employed only on part time or at work that is ineffective or unproductive, with a correspondingly low
income that is insufficient to meet their needs.” In line with this, the underemployed are individuals who
are wrongly matched to responsibilities due to lack of sufficient jobs and so, could not earn income that is
consistent with their qualifications, competence or expertise.
Certainly, there is a connection between unemployment and underemployment. To establish this
connection clearly, we discuss both concepts under the following three variants as suggested by Anyanwu
(1995). He explained unemployment as:
i. insufficient job opportunity;
ii. inadequate income; and
iii. underutilisation.
Considering the first variant, that is, insufficient work opportunity, unemployment can be seen visibly as a
person without work but seeking work at going wage rate. Nevertheless, this individual will not openly
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Under the same variant, underemployment manifests as person with work but seeking to work longer
hours, and disguisedly as a person employed, not openly seeking longer hours but who would seek it at
going wage rate, if underemployment were reduced to "reasonable levels".
However, when considering the second variant, that is, inadequate income, the definition of
unemployment remains as inadequate job opportunity but the definition of underemployment is a
situation where an individual is employed but earns less income than what is required to provide
minimum standard for himself and his household. This implies that such individual will covertly seek
longer work hours at prevailing wage rate.
It should be noted however that, closely related to this concept is underutilisation, which is also the third
option. Unemployment and underemployment however remain what they are in the first and second
option as the case may be but a person is underutilised if such individual works full time but not used to
full capacity. This is rampant in Nigeria public sector where employed people contribute next to nothing
to national output as a result of duplication of duties. In summary, unemployment occurs when resources
are used below full capacity.
10.1.3 Government effort to curb unemployment in Nigeria

We must highlight some of the measures taken by Nigerian government at different periods to tackle the
problem. These are policy interventions supported with programmes.
In 1980s, federal government allocated a sum of ₦25 million (twenty five million naira) to state and local
governments in the federation as unemployment grants to be used for various agricultural programmes, as
well as providing vocational skills for unemployed school leavers.
This was followed with the creation of national directorate of employment (NDE) and its skills
acquisition programmes like National Accelerated Poverty Reduction Programme the (NAPEP), Poverty
Alleviation Programme (PAP), among others. The directorate was charged with the responsibility of
creating job opportunities for the unemployed and to implement other government measures
towards solving the unemployment problem generally in Nigeria.
Under the present administration, The Subsidy Reinvestment and Empowerment Programme SURE-P,
and the Youth Enterprise with Innovation in Nigeria (YOUWIN) appear to be government core initiatives
to tackle unemployment; with programmes such as Graduate Internship Scheme (GIS), Community
Services Scheme (CSS), Vocational Training Scheme (VTS) and Community Services, Women and
Youth Empowerment (CSWYE), as driving vehicles for the project. The basic thrust of these programmes
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10.2 Types of Unemployment in Nigeria
Three basic types of unemployment are discussed in economics literature informed by classical and
Keynesian theorists. Nevertheless, due to internal structure and peculiarity of different economies,
unemployment can manifest in different forms. Some types of unemployment in Nigeria are explained as
follows:
10.2.1 Frictional unemployment

This unemployment occurs in Nigeria as result of uneven development. Obviously, more job
opportunities exist in major cities like Lagos, Kano, Port Harcourt, Ibadan while next to nothing can be
found in other parts of the country. Theoretically, frictional unemployment exists when people are
changing from one job to another. This also implies the period of waiting by new labour market entrants
as well as employed workers who are disengaged and hoping to get employment. Furthermore, frictional
unemployment in Nigeria appears as movement of job seekers from disadvantaged locations (mostly rural
areas) to places where more job opportunities can be found.
10.2.2 Structural unemployment

Structural unemployment is very prevalent in Nigeria. It occurs when labour market is unable to provide
jobs for everyone who wants one due to mismatch between the skill of the unemployed workers and the
skill needed for the available jobs. With deteriorating educational standard, many job seekers lack the
skills required to perform at optimal level on the job. Besides, the fall in demand for particular product
due to changing fad and taste results in structural unemployment.
10.2.3 Cyclical unemployment

Cyclical unemployment has been the biggest economic ill of Nigeria since 1980s when the economy
experienced her first critical shocks as a result of global economic recession. From then on, successive
governments have not shown genuine commitment towards the infrastructural development even to the
extent of allowing few available functional ones to fall into comatose. Consequently, businesses operate
in a very hostile environment which results in massive lay-off of workers arising from downsizing or
complete shutting down of firms in Nigeria. The manufacturing sector which predominantly used to
employ large numbers of employees is the worst hit. Most of the manufacturing factories at various
industrial estates are now converted into mere warehouses for imported goods mainly from China.
Cyclical unemployment in Nigeria, unlike in developed nations, occurs as a result of non-conducive
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business climate, poor infrastructural development, government industrial policy somersault, non-
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competiveness of indigenous industries, high cost of credit or high lending rate charged by commercial
banks and the lack of credit facility for SMEs. It is seemingly impossible for manufacturing firms to
contract credit at more than 22% charged by commercial banks and return such capital from
manufacturing activities not to talk of making any profit. The resultant effect of all these macroeconomic
anomalies is the prevalent cyclical unemployment.
10.2.4 Seasonal unemployment

This unemployment occurs due to seasonal as well as climatic changes. It exists most in the industrial
sector, and in sectors that are seasonal in nature. Lack of irrigation and modern agricultural implements
make agricultural practices highly seasonal in nature. During peak activities, more people are employed
but laid off once the season is over. In addition, high demand for goods and services during major
festivals like Christmas, Easter, Salah, etc will result in more production of goods and services in high
demand consequently resulting in increased labour demand but for a short period for workers known as
casual workers in Nigeria. Once the peak period is over, employed labours (casual workers) are
disengaged. For instance, road construction companies do employ more workers during the dry season
since more activities take place without hindrance.
10.2.5 Transitional unemployment

This unemployment has been considered as normal unemployment, because its duration is shorter than
imagined, and it does not affect the economy adversely. In construction industries as well as industries
that rely heavily on manual labour, workers are temporarily laid off at the end of major projects.
However, they are re-engaged when other projects become available though some disengaged workers
may move to other similar ongoing projects elsewhere.
10.2.6 Hidden unemployment

Hidden unemployment has to do with real unemployment and official unemployment figures. Hidden
unemployment occurs since the official statistics cannot capture all unemployed individuals due to one
reason or the other. We see hidden unemployment as the unemployment of potential workers that does not
appear on official unemployment statistics due to the methodology used for gathering data. It includes:
i. Those who have given up looking for work (and sometimes those who are on government
retraining programmes);
ii. Persons who have taken early retirement to avoid compulsory retrenchment, but would prefer to
be working;
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iii. Individuals with part time or seasonal jobs who would rather have full time jobs; and
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iv. People who are of working age but are currently in full-time education.
Because of hidden unemployment, official statistics often underestimate unemployment rate.
Nigeria’s geographical spread with poor infrastructural development portends possibilities of high
hidden unemployment.
10.3 The Major Causes of Unemployment in Nigeria

The major causes of unemployment in developing economies (Nigeria inclusive) is multi-faced, ranging
from continuous increase in population, migration from rural to urban areas, to corruption, nepotism and
the like. Some of these problems are examined herein:
10.3.1 High level of corruption

Corruption is undoubtedly one of the most popular words in Nigerian lexicon. It is simply seen as a
dishonest or unlawful behaviour, especially of people in leadership position. It is an abuse of public office
for private gain which usually involves embezzlement of public funds, nepotism, falsification of facts and
figures, etc. Corruption has no doubt done incalculable damage to all facets of our social endeavours with
damning consequences on the economy’s potential to create jobs for all and sundry.
It is a popular belief that corruption and nepotism saturate job placement in both private and public
sectors. In the labour market today, ‘whom you know’ and ‘how much you can pay’ determine one’s
chances of securing employment, rather than merit. These of course, have prevented qualified, competent,
determined and energetic Nigerians from gaining employment.
10.3.2 Poor infrastructural development

Lack of basic infrastructure like power, good road network impedes job creation and has contributed
immensely to enormous joblessness everywhere in the country. Infrastructural development facilitates
emergence and sustenance of cottage, small and medium scale enterprises which have the ability to absorb
people in large numbers. No doubt that the inability of successive administrations to tackle the problem in
power sector has done a huge damage to the manufacturing industry where many firms have closed shop
and laid off workers in hundreds of thousands.
10.3.3 Improper utilization of government revenue.

Consistent huge recurrent expenditure to the detriment of capital expenditure by the government impedes
job creation. The nation has been operating a budget of about 70:30 ratio of recurrent to capital
expenditure over the years by successive administrations. Even with minimal capital vote, the
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10.3.4 The effects of globalisation
Globalisation has negatively impacted Nigeria’s economy and subsequently increased unemployment
level and poverty incidence. The challenges of globalisation on Nigeria have been frightening because
Nigeria has since operated an open economy that is exposed to international competitiveness thereby
eroding the performance of firms in key sectors of the economy which cannot compete effectively with
their rivals in advanced economies. No doubt, the supposed benefits of internationalisation made Nigeria
to accept and adopt Washington consensus Structural Adjustment Programme (SAP), a neo-liberal policy,
with the hope that the nation will benefit from the process. But this appears to be contrary to the
expectation as the stack reality shows that, globalisation rather than improve job creation has increased
the level of joblessness in Nigeria.
10.3.5 Rural - urban migration and neglect of agricultural sector

Since the oil boom, there had been a deliberate neglect of the agricultural sector and consequent mass
exodus of able- bodied youths from the rural to the urban areas in search of non-existent white collar jobs.
This further reduces employment in agriculture and puts pressure on existing urban jobs. Obviously,
agriculture which is the largest contributor to the nation’s Gross Domestic Product (GDP) though
declining, and highest employer of labour has been left in the hands of old men and women in the rural
areas as young and vibrant men and women search for non-existing jobs in the cities. The inability of
successive governments to revitalize this sector by investing in the entire value chain thereby making it
agric-business and not just mere farming is a major reason for the neglect seen in the sector with
associated prevalent unemployment. What a misplaced priority for a nation blessed with arable land as
well as favourable weather conditions!
10.3.6 Increased educational opportunities and misdirected investment in human capital

Another cause of unemployment in Nigeria is the rapid expansion of pre-primary, primary, secondary and
tertiary education which gives rise to an expanded labour market. The direct consequence is the influx of
thousands of school leavers to the cities in search of decent jobs. Besides, mismatch between the supply
of a category of skilled labour and responsibilities has in no small way contributed to the present
joblessness.
10.3.7 Falling foreign exchange earnings

Nigeria’s overdependence on oil sales (as monoproduct economy) exposes the economy to shocks from
international market leading to falling foreign exchange earnings whenever oil price slumps, thereby
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resulting in austerity which has worsened unemployment level. At the moment, Nigerian economy is still
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fine tuning how to project revenue for financing 2015 budget expenditure based on global oil price which
has fallen below her revised budget benchmark. The direct consequence of this is the conspicuous decline
in government 'capital vote" for year 2015 that would have been used to create jobs for the unemployed.
10.3.8 The problem of alien incursion

Nigeria’s porous border has led to massive entry of neighbouring Africans, encroaching into her territory
without due process and documentation. These aliens compete for available jobs thereby increasing
unemployment level.
10.3.9 Forceful retrenchments and premature retirement

The glut in labour market has made firms put in place employment policies that will enable them replace
highly paid workers with relatively cheaper ones whenever they deem fit. Hence, there are millions of
early retirees in the labour market who still prefer to be working.
10.4 Effects of Unemployment on Nigerian Economy

High and persistent unemployment in Nigeria affects the economy as follows:
i. It has eroded the funding base; and
ii. It has increased the demands on government through the use of welfare
programmes because of the consequences for poverty and inequality.
Generally, the effect of unemployment can be discussed as follows:

10.4.1 Brain drain
Unemployment, especially among university graduates, results in massive emigration of youths to other
countries in Europe, North America and recently Asia. This brain drain leads to loss of high skilled
personnel and manpower that would have facilitated economic development of Nigeria.
10.4.2 Increase in social vice and crimes

Frustrated unemployed youths could be available supply stock for insurgency/terrorism, militancy, armed
robbery, prostitution, economic saboteur, drug trafficking, smuggling, ritual killings and other social vices
that constitute economic deadweight.
10.4.3 Fall in national output

Inability to maximise our economic potentials in agricultural sector and industry can be traced to the high
unemployment in Nigeria. In the meantime, unemployment leads to low productivity and low productivity
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will in turn lead to low output and income.

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10.4.4 High dependency ratio
Certainly, the large unemployed depend on the small number of the working population for their survival.
Therefore, there is noticeable reduction in efficiency and savings culminating in poor standard of living to
all (jobless and employed alike).
10.4.5 Poor living standard

Unemployment leads to poverty and lower standard of living. No job, no pay and the political situation of
developing countries like Nigeria where social safety-net for unemployed people are totally absent make
the unemployed to find it very difficult to have minimum living standard. Therefore, an unemployed
person is a poor person with little or no income.
10.5 Solution to Unemployment in Nigeria

The following are the policies to combat unemployment problem in Nigeria and this is also applicable to
many developing nations where similar problem persists.
10.5.1 Fight corruption headlong

Corruption of any kind and form which has saturated almost all facets of our social existence must be
wiped out if we will make any formidable progress in job creation. The driving vehicle is to strengthen
the institutions saddled with such responsibilities and empower the judiciary in order to hasten justice
delivery. Strong anti-graft bodies (EFCC and ICPC) cannot function effectively if the judiciary is stifled.
10.5.2 Aggressive infrastructural development across the country

If Nigeria developed its basic infrastructure like good road network, stable electricity supply, efficient
pipe borne water and other social overhead, producers will be motivated to establish businesses since cost
of doing business will be lower, consequently creating massive employment opportunity. Infrastructural
development will also facilitate inflow of foreign direct investment as the business environment becomes
more friendly and conducive. Hence, more jobs are created.
10.5.3 Economic diversification

There is no better time than now that Nigeria must diversify her economic base and explore other
potential revenue heads in agriculture, tourism, services, etc. This will create new jobs, reduce
unemployment and strengthen the economy against external shocks in the global commodity market.
10.5.4 Modernization of agriculture

Agriculture remains the largest employer of labour in Nigeria and should be modernised and packaged so
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that the entire value chain can be explored as “agric-business” and not just mere farming.
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Doing this, Agriculture will become an attractive and profitable business venture which will engage
millions of unemployed individuals.
10.5.5 Re-design educational curricular with focus on science and technology that will accommodate
present realities for change and development
Nigeria presently operates curriculum that is geared towards making individuals job seekers rather than
job creators. To have expected change and reduce the level of unemployment, our curriculum must be
redesigned so as to accommodate realistic and practicable job creating tendencies.
10.5.6 Human capital development

Development of human resources is the back bone of every economy. A nation that developed its human
resources would expand its productive capacity. Therefore it is high time government saw spending on
education as investment in human capital and not just mere expenditure. In addition, there must be
commitment from government and employers to continuously train and retrain workers so they can be
globally competitive and reduce cases of obsolete skills.
10.5.7 Reduction of population growth rate

Nigerian government must adopt stiff measures to reduce population growth through family planning,
persuasion, coercion, financial incentives and disincentives, legislation and education. Nigeria has one of
the largest population growth rate in the world leading to labour market growth outstripping government
job creation effort.
10.5.8 Address rural-urban migration

If Nigeria will make any formidable impact in unemployment reduction, there should be an integrated
rural development programmes, re-orientation of economic activity, social investments and the spread of
small-scale labour intensive industries in the rural areas to check rural-urban drift.
10.5.9 Checkmating alien incursion

As a matter of urgency, all illegal aliens in Nigeria, from whichever continent should be identified and
deported accordingly, irrespective of their nationalities. There should also be concerted effort in
addressing our multiple porous borders so as to checkmate this menace once and for all.
10.5.10 Creation of national employment system

National employment system, charged with the responsibility of collating reliable information on the job
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market should be created. It will undertake the registration of the unemployed and make placements
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where openings exist. It will equally advise the government on appropriate measures for the reduction of
unemployment in the country.
10.5.11 Research and development

Economic development is anchored on the quality of research and development at the disposal of policy
formulators. This enables a country to expand knowledge base, business methods and production
capacity; thereby creating employment opportunity.
10.5.12 Political stability

Economics and politics are interrelated so a stable polity with sound macroeconomic environment
encourages both domestic and foreign entrepreneurs to establish business and thus create employment
opportunity. As a nation, we must find a lasting solution to all forms of social restiveness─armed robbery
in the West, kidnapping in the East, militancy in the South and insurgency in the Northern part of the
country.
Summary of study session ten
Unemployment rate increased from 4.3 percent in 1976 to 6.4 percent in 1980 for the first time in
Nigeria history hereby raising concern of joblessness in the economy.
Structural adjustment programme (SAP) was adopted and implemented in late 1980s so as to solve the
problem of unemployment.
In Nigeria, unemployment is explained as insufficient job opportunity, inadequate income, and
underutilization of human resources.
Millions of job seekers enter the labour market annually and concentrate in major cities searching for
jobs; this refers to frictional unemployment.
Minimum wage legislation as well as labour union continuous agitations for improved terms and
conditions of service are responsible for cyclical unemployment in Nigeria.
Dishonest behaviour in private and public sectors, embezzlement of public funds and all forms of abuse of
office known as corruption, no doubt is a core cause of unemployment in Nigeria.
Unemployment can be solved if there is a genuine and concerted effort to diversify the economy and
reduce dependence on oil revenue.
Unemployment in Nigeria has reached the level in which all concerted effort must be made to tackle it.
Youth unemployment in Nigeria is very high; and it is linked to the increase in most social unrest like
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militancy, insurgency and other social vices seen in most parts of Nigeria.
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Self-assessment questions for study session ten
S.A.Q.10.1
Unemployment has been a major economic problem in Nigeria. Discuss.
S.A.Q.10.2
Highlight the types of unemployment in Nigeria.
S.A.Q.10.3
Explain some causes of unemployment in Nigeria.
S.A.Q.10.4
Justify the huge poverty level in Nigeria as a consequence of high unemployment rate.
S.A.Q.10.5
What are the possible solutions to the problem of unemployment in Nigeria?
References
Anyanwu, J.C. and Oaikhenan, H.E. (1995); Modern macroeconomics: Theory and Applications in
Nigeria, Joanee Educational Publishers Limited Onitsha-Nigeria.
Dalhatu, .D & Yusugu-Bagaji, A. S (2014); Implications of Unemployment on Nigeria’s Sustainable

Development: International Journal of Public Administration and Management Research
(IJPAMR), Vol. 2, No 2, March., 2014 Website: http://www.rcmss.com.
Harold, G .F (1982); Professionals in search of work: Coping with the Stress of Job Loss and
Underemployment: John Wiley &Sons Inc
Oyeshola, O.P. (2008). Sustainable Development: Issues and Challenges for Nigeria. Ibadan: Daily
Graphic Nig. Ltd.
Global Employment Trends (2013): International Labour Organisation.

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Appendix 1: Answers to self-assessment questions for study session one
S.A.Q.1.1
The contribution of labour as a factor of production in the creation of goods and services cannot be
overemphasized. Labour coordinates other factors of production. Most advanced as well as sophisticated
technology (capital) cannot function without labour input. Labour appears as both physical and mental
efforts without which production cannot take place. For instance, labour must cultivate on land to produce
agricultural products. Similarly, labour explores land for mineral deposits. In the manufacturing sector,
plants and machineries cannot operate themselves without input from labour.
S.A.Q.1.2
Labour economics examines how the market for labour operates, with a view to understanding the
interactions between workers and employers. Labour economics studies the nature and determinants of
employment and compensation. Labour economics seeks to understand the functioning and dynamics of
labour market. Labour market functions through the interaction of workers and employers. Labour
economics looks at the suppliers of labour services (workers), the demanders of labour services
(employers) and the resulting pattern of wages, employment, and income. In economics, labour is seen as
a measure of the work done by human beings. It is conventionally contrasted with such other factors of
production as land and capital.
S.A.Q.1.3
Firms/businesses are demanders of labour while households are suppliers of labour services. Hence firms
purchase labour services from households making households the seller of labour services. This
interaction implies trade which is defined as selling and buying of commodities. Furthermore, for trade to
be consummated there must be a market arrangement that will bring buyers and sellers of the
commodities in focus together. Under this background that labour services or labour hour is the
commodity traded, the process by which firms get required labour hour/services for the purpose of
producing goods and services which in turn must be supplied by the households can only occur through
labour market as an institution. In summary, households and firms must meet through labour market
arrangement before buying and selling of labour hours/services can be concluded.
S.A.Q.1.4
Labour market is bedeviled with a number of challenges thus: strikes, demonstrations and destructive
forms of protests which are housed under industrial actions thus impacting negatively on economic
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activities and revenue. Also, wage determination by fiat which involves serious intervention on the part of
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the state, instead of allowing wages to be negotiated by labour market factors as well as forces of demand
and supply may lead to inefficient allocation of wages.
Globally, youth unemployment is a problem. However in Nigeria, the situation is more endemic due to
the high rate of increase. These factors distort effective operations of the labour market. The rate of
growth of factor and commodity prices is again much faster in Nigeria and most Third World nations. It is
also possible that wages constitute a substantial part in the inflation equation. The labour market still
hugely relies on foreign ideas in solving most of its many challenges. It has been observed that theories,
policies, practices and programmes imported from developed countries do not work optimally in Nigeria
as intended, due to cultural, historical and structural differences.
S.A.Q.1.5
It is an open secret that jobs are very scarce across most industries in Nigeria. The situation is worst in the
public sector where appointments are based on nepotism, political party affiliations, religious bias and
ethnic nationalities leaving qualifications, eligibility, competence, strong work ethics and professionalism
out of the picture. In the private sector, new entrants have to break the minimum age barrier which
employers set to favour the high classes who have the privilege of attending private institutions from
cradle. A large number of job seekers who can be tagged as ordinary citizens face dual hiccups in the
public and private sectors in their bid to get decent jobs. Majority of these job seekers are either too old
for the private sector or not well connected for the coveted jobs in the public sector.
Millions of job seekers compete with one another for very few slots. Multiple testing and rigorous
interviews are used to select candidates for engagement for jobs where transparency is still being
practiced. This competition has prevented millions of job seekers from getting jobs on time. Besides, the
working population especially in the private sector is expected to deliver optimal results always as any
shortfall is seen as non-performance which if it occurs more than once may result in termination of
appointment. Despite the belief that Nigerian graduates are half-baked, it is quite easy and cheap to find a
replacement for any skills or position due to labour supply surplus.
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Appendix 2: Answers to self-assessment questions for study session two
S.A.Q.2.1
Labour demand describes the amount of labour services which firms/businesses or an economy is willing
to employ at a given point in time. In order words, it is the number of labour hours which employers are
willing to engage at certain period of time.
The demand for labour is a derived demand in the sense that labour is demanded not for itself but for what
it can produce. Labour is only demanded as an input into the production process. Hence a change in
demand for the goods or services in question will trigger a change in the demand for labour that helps to
make the product.
Labour earns wage as reward for its contribution to production. Technically, wage rate is the price paid to
purchase labour services, so it plays a very prominent role in determining labour demand. From our
elementary demand principles, price is inversely related to quantity demanded. Similarly, in the labour
market, wage rate is inversely related to labour demand. Employers tend to raise labour demand when
wage rate is low and cut labour demand when wage rate goes up.
We combine labour and capital as inputs for production. The rate of substitution determines the
proportion of factor intensity. However, employers will consider the unit cost of capital while making
labour demand especially where capital can be substituted for labour. If the wage rate which is the cost of
labour increases and capital becomes relatively cheaper, demand for labour may fall all things being
equal.
Labour is demanded for the goods and services it will produce. Based on this reality, the demand for the
goods and services produced by labour to a very large extent determines demand for labour. In addition,
employers will consider the marginal revenue as additional revenue from additional products sold which
must have been produced by additional labour engaged while deciding on the amount of labour hours to
employ.
S.A.Q.2.2
Marginal revenue productivity theory has expanded the discussion on labour market operation with focus
on labour demand. In line with production theory, certain concepts are used thus:
Marginal physical product (MPP) is extra physical output produced by one extra worker; and Marginal
revenue product (MRP) is the extra revenue gained by the firm as a result of employing one extra
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worker. We usually analyse labour demand with marginal revenue productivity theory in the perfect and
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imperfect competitive market. In a perfect competition, demand is elastic with price the same as marginal
revenue. Consequently, marginal revenue product follows directly the behaviour of marginal physical
product. Additional workers lead to additional output and revenue until diminishing returns set in. As
marginal physical product falls, so too does marginal revenue product.
The situation is quite different in imperfect competition. Here, firms are price givers and can vary prices
in order to accommodate latest market development. The law of demand is activated as follows: The firm
may have to accept a lower price per unit for its product as a direct result of increasing marginal physical
product. This has impact on the marginal revenue product of employing extra units of labour.
Unlike perfect market arrangement where diminishing returns only impact revenue; here a combination of
diminishing returns to extra labour and a falling price per unit causes marginal revenue product to fall.
S.A.Q.2.3
We know that wage rates are sticky downward. Elasticity demand curves are relatively flat, so for a given
change in the wage rate the proportionate change in the demand for labour will be larger. Inelastic
demand curves are relatively steep, so for a given change in the wage rate, the proportionate change in the
demand for labour will be much smaller. Some of the determinants of labour demand elasticity are
examined as follows:
The more substitutes there are, in terms of factor input, then the more elastic the demand for labour will
be. Labour demand will be more elastic when a firm can substitute speedily and easily between labour and
capital inputs. When specialized labour is needed, then the demand for labour will be more inelastic.
Since labour is a derived demand the elasticity of demand for labour will be greatly affected by the
elasticity of demand for the goods or services produced by labour.
S.A.Q.2.4
In the short run, the nature of labour supply is very interesting as well as complicated in the sense that
individuals’ labour supply decisions vary. At the initial stage, higher wage stimulates workers to supply
more work hours in order to make more income (money). However, as the wage rate increases steadily,
two things pop up: labour will work more hours by sacrificing leisure hereby making leisure more
expensive technically known as substitution effect.
On the other side of the coin, higher wage rates connote higher real income, ceteris paribus. Though many
workers may never earn enough income to start thinking of having more leisure, some will attain an
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income level that will make them give up more work hours.
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S.A.Q.2.5
Labour supply is determined by many factors and premised on certain assumptions thus:
Labour supply is homogenous, such that the analysis of labour supply may vary according to recognisable
selected groups of workers in the labour market.
It further postulates that people are already working the preferred number of hours and therefore only
offer more hours during a given time period exclusively because of higher wages.
In addition, people are not compelled to offer labour services against their wish and can alter the number
of hours worked from zero to 24 hours a day.
Finally, the price of leisure is the foregone wage to a worker. Wage increase makes leisure to be more
expensive, inducing the worker to put in more effort. At the same time, an increase in the wage rate
increases income, which leads to increase in the purchase price of leisure, and a decrease in hours of
work.
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Appendix 3: Answers to self-assessment questions for study session three
S.A.Q 3.1
The roles of human capital development in economic growth and development of any nation cannot be
overemphasized. This is because human capital constitutes the most prized resource of a country. Physical
capital (tools, machinery, and equipment) cannot perform or be utilized optimally without the active
involvement of human capital. Likewise, non-performance of physical capital impede economic progress
of any nation. Human capital has been instrumental to the economic stride of developed nations of the
world. In line with its prominent roles, United Nations has mandated developing countries to allocate a
minimum of 26 percent of their national budgets to education which is one indispensable elements of
human capital.
S.A.Q 3.2
Education and health are two main types of human capital. Other types or forms are subsumed into
these two broad categories. Education is one of the most debated types of human capital development due
to the fact that educated people are considered valuable additions to both the society and the work place
by virtue of the knowledge they have acquired which can help them develop business, society and the
economy at large.
Also, Health is crucial to life. The general maxim: “Health is wealth” is one of the most used quotations
in the world. Knowledge, skills and business processes will be rendered useless in the midst of failing
health. Therefore, provision of health facilities is essential for government to maximize the social welfare
of the citizens. The importance of this aspect of human capital development is related to the fact that the
healthier the individual, the more productive that individual will be.
S.A.Q 3.3
Education affects human capital as follows: Earnings increase with work experience at a decreasing rate.
Education reduces rate of unemployment considering the negative relationship between unemployment
and level of skill. Thus, the higher the skill level, the shorter the period or incidence of unemployment.
Since young people can easily access education, they change jobs more often and receive more schooling
and training on the job than older people.
Individuals with more ability usually receive more education than less able people.
Dispersion in the earnings distribution within schooling groups tends to increase as the level of education
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increases.
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S.A.Q 3.4
Spending on training and education is referred to as investment technically. At the level of individual and
the family, expenditure on education as investments competes with consumption and financial assets due
to the scarce resources of the household.
The cost of human capital consists of direct cost, for instance, tuition fees, books and supplies; and
indirect expenditures such as earnings foregone while the human capital investment is being made, as well
as the value of time that is taken from other endeavours. The activities involved in training and education
are time consuming as they literally preclude an individual from simultaneously engaging in other
activities. Since labour market participation is often regarded as the principal alternative to human capital
investment, this lost time can be valued in terms of the earnings that would have been received had the
person been working rather than learning or acquiring knowledge.
In the case of on-the-job training, the indirect cost to the worker is the lower wage accepted during the
period of training. In apprenticeship, the wage of the apprentice is increased gradually as he learns the
skills of trade.
S.A.Q 3.5
Some of the benefits of education and training are discussed as follows:
To the individual, skill improvement through education and training may result in a higher wage rate or
salary. This wage rate is higher than what the individual could possibly get had he not embarked upon the
human capital investment. However, skills improvement may have little or nothing to do with
productivity but as long as the employer is willing to give an increase in the wage rate after training, there
will be benefits to the individual for having undertaken the training.
To businesses, benefits amass in the form of an increased gap between the value of the workers’
contribution to the firm and the wage rate received by the workers. Thus, if training raises the productivity
of workers, and firms increased productivity, and firms do not pass the entire value of this increased
productivity in the form of higher wages to their employees, the variance between the enhanced marginal
product and the wage rate offered to the workers will be benefits to the firm providing training of this
type.
On the societal scale, decision in situations involving say expansion of the local public facility,
construction of general hospitals and the purchase of financial assets might be regarded as alternative
investments. With cost-benefit analysis, it is known world over that human capital investment remains the
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Appendix 4: Answers to self-assessment questions for study session four
S.A.Q 4.1
Minimum wage is usually set by government with contribution from trade unions which collectively
negotiate wages and other conditions of employment in the public sector. Minimum wage is the pay
below which no worker is expected to receive for selling his labour hours either to the government or
private businesses. The minimum wage is usually set above the equilibrium wage rate because it is
usually fixed for the improvement of workers’ social welfare. In a situation of excess supply of labour,
workers exploitation will be massive due to the fact that interplay of forces of demand and supply will
bring equilibrium wage down in line with economic principle of falling prices when supply exceeds
demand.
So the wage which the market will dictate as equilibrium wage may not be sufficient to maintain minimal
living standard by any definition.
S.A.Q 4.2
Workers earn different wages. These wage differentials are mostly the result of differences in workers
ability, contribution to production and productivity. Wage differential is the difference in wages between
workers with different skills in the same industry or between those with comparable skills in different
industries or localities. People earn differential wages for doing very risky jobs (pilot, sailor, miner),
working in poor conditions and having to work overtime.
Moreover, wages and salaries differentials are used to compensate people who have made a huge
investment in education, training, etc.
Level of skills also determines wage. Skilled labour/expatriates earn more than semi-skilled and unskilled
labour because the demand for skilled labour is elastic unlike other categories. For instance, a bank’s
managing director cannot be easily replaced unlike security personnel in the same bank.
Similarly, workers whose efficiency is highest with ability to generate revenue are rewarded accordingly
with higher pay.
Finally, the role of trade unions in wage differential practices cannot be overemphasized. At times, they
protect their members by ensuring they earn certain wages which may be ahead what similar labour in
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S.A.Q 4.3
Wage differential is examined from three broad categories which are occupational wage differentials;
compensating differentials; and geographical wage differentials
Firstly, the types of job done determine the wage earned. For instance, surgeons make more money than
teachers. The demand for labour is a derived demand for the product or service that the worker provides.
If the worker provides a product or goods that are highly desirable, then a higher wage will prevail for a
given supply of workers who could do that job.
Secondly, a compensating wage differential is an additional amount of income that must be offered in
order to motivate workers to accept a given undesirable job, relative to other jobs that workers could
perform. Some jobs pay more because they are less desirable. Such jobs may be risky, untidy and
environmentally unattractive.
Thirdly, geographical wage differential is built on neoclassical assumption of clearing labour markets,
where there is a more attractive area to live in and if labour mobility is perfect, then more and more
workers will move to this area which in turn will increase the supply of labour and in turn depress wages.
Workers will then become indifferent to wage differences in different geographical locations based on
attractiveness of where they live and work. Hence, a sustained equilibrium with different wage rates
across different areas can happen.
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Appendix 5: Answers to self-assessment questions for study session five
S.A.Q 5.1
Labour mobility studies the ease with which workers are able to move around within an economy and
between different economies. Labour mobility affects production process. It facilitates efficient allocation
of productive resources as well as drive innovation.
S.A.Q 5.2
Basically, there are two primary types of labour mobility namely geographical and occupational.
Geographical mobility of labour means worker’s ability to work at a particular physical location. That
is, when a worker moves from one place to another within a country or from one country to another.
Secondly, occupational mobility of labour discusses the movement of workers from one occupation to
another.
Occupational labour mobility is further divided into horizontal mobility of labour; and vertical mobility
of labour. The former refers to the movement of labour from one occupation to another in the same grade
or level while the latter refers to when a worker of a lower grade and status in an occupation moves to
another occupation in a higher rank.
S.A.Q 5.3
Labour mobility do not just occur, particular factors encourage labour mobility. These factors include the
level of educational attainment and training, types of social interaction in practice, ease of transportation
and communication, extent of agricultural progress, level of industrialisation, trade, traffic and means of
jobs advertisement.
S.A.Q 5.4
Barriers to labour mobility are: above equilibrium minimum wage, the presence of forced unionisation,
poor infrastructure and housing to accommodate fast moving changes in labour demand, family ties and
undue attachment to a geographical location, lack of formal education or limited access to it. In addition,
government approval, licences and stringent conditions for business registration in conjunction with
enforcement of strict international industry standard, effective unemployment benefits as well as social
security that de-motivate workers from accepting employment at clearing market rates, and every form of
discrimination hinder labour mobility.
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Appendix 6: Answers to self-assessment questions for study session six
S.A.Q 6.1
Trade unions are voluntary organisations formed to protect and preserve their members’ rights. They
ensure that workplaces are safe and that people’s health are not being put at risk or jeopardized through
their jobs. They give their members legal support to make sure firms comply with labour laws to the letter
while dealing with their employees who are union members.
They fight for improved welfare and living conditions through improved remunerations.
S.A.Q 6.2
To achieve the main objectives of their struggles, trade unions speak on behalf of their members with one
formidable voice. With this, management/employers are left with no choice than to listen since it is the
voice of majority.
In addition, trade unions provide necessary information, advice and guidance about work-related
problems to their members. This will enable such members avoid work place danger which may destroy
their career.
They use campaigns, rallies, and demonstrations to oppose wicked and unpopular work rules like low
pay, all forms of discrimination and bullying.
S.A.Q 6.3
At the beginning of 18th century, increase in steam power and technology no doubt led to great production
of goods in Europe. As outputs continue to rise, more workers are needed to drive the process, so women,
children, and immigrants were brought into the workforce in their large numbers. They also assumed new
roles and status. Then there were concerns about the terms and conditions of work which workers
believed were designed to favour the bourgeoisie as well as capitalist, and they (workers) were being
exploited. To fight for what they deserve, workers began to gather and speak with one voice when
presenting their demands to their employers.
S.A.Q 6.4
The early history of trade union in Nigeria was full of division and struggle for power and recognition.
Before the formal creation of the Nigeria Labour Congress in 1978, The Nigeria Trade Union Congress
(NTUC), Labour Unity Front (LUF), United Labour Congress (ULC) and Nigeria Workers Council
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(NWC) were the four central labour bodies in existence. The emergence of the Nigeria Labour Congress
(NLC) ended decades of contention and rancour involving the four centres and unions affiliated to them.
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Trade unionism in Nigeria has survived two instances of dissolution of its national organs and consequent
appointment of state administration to take over. One of the military interventions took place in 1994
during the regime of General Sani Abacha, whose government became fed up with the labour movement
agitation for the restoration of democracy. The dissolution of its organs exemplified the travails of
congress, its leadership, affiliates and state councils, under the military rule. The military invoked its
legislative rights to unleash all manner of legislation to check the activities of the unions. For instance,
under Gen. Abacha, a decree that banned a section of the movement from holding leadership position in
congress was promulgated. However, labour unions regained their freedom after the death of Gen.
Abacha culminating in a National Delegates Conference held on January 29, 1999.
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Appendix 7: Answers to self-assessment questions for study session seven
S.A.Q 7.1
Collective bargaining is no doubt a tool for negotiating wages, and conditions of employment between
employers and unions standing for the employees. Only the trade unions for the category of workers
whose working conditions are being negotiated can participate in collective bargaining process. Unions
enter collective bargaining with business managers/employers on matters like remunerations, hours of
work and other conditions of employment. These agreements usually govern all present and future
workers. However, some issues cannot be negotiated since employers have certain exclusive rights on
how to manage their businesses.
S.A.Q 7.2
Effective collective bargaining structure will produce a robust and enforceable agreement. To achieve this
outcome, the following must occur:
Firstly, there must be open mindedness on the part of the union and management with each party ready to
shift position when convincing proposals are offered by the other side.
Secondly, anybody leading either team should be individuals with impeccable experience in resolving
industrial dispute. During negotiation, however, both parties should keep focus and avoid totally isolated
issues.
Thirdly, purposeful and fruitful collective agreement must be implementable. Gigantic agreements that
are not workable and practicable will not actualise the main reason for initiating collective bargaining.
Finally, before going to the table for negotiation, management/employer must thoroughly examine the
situation as well as the items submitted for negotiation before meeting with the union. Only verifiable
facts should be used and sentiments must be totally avoided.
S.A.Q 7.3
Some of the arguments against collective bargaining are:
When the community bears the cost of collective bargaining, the community will have to sponsor two
groups (employers and labour unions) during the negotiations which may last longer than imagined.
Hence the cost may be higher than that of other methods.
Moreover, in cases where the technical expertise required is lacking, the efficiency of collective
bargaining becomes doubtful.
Furthermore, collective bargaining usually involves threats of industrial action leading to work shut down,
go slow and forceful disengagement of workers.
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In addition, trade unions usually base their agitations for increased wages on fairness without considering
the ability of the firms to pay. As we know, there is constant conflict between the principle of the
employer’s ‘ability to pay’ and that of ‘fairness,’ that is, workers wanting improved living standard.
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Appendix 8: Answers to self-assessment questions for study session eight
S.A.Q 8.1
Employee grievances occur when work atmosphere becomes not very conducive in the view of the
workers. Employees may use promotion as basis for their grievances while the real cause of anger is
disciplinary actions taken against them. Since work and social ties are much related, the real causes of
employee grievances are usually covert.
S.A.Q 8.2
Individual grievances mean one employee feeling aggrieved. This can happen due to change of
environment and habits; personal or domestic issues that are totally unrelated to conditions of the job.
Collective grievances mean more than one worker feeling aggrieved. This usually surfaces from
 alleged ill-treatment of a worker, who is a union member;
 disagreement between the local union representatives and management over the interpretation or
non-implementation of the collective agreements;
 discipline, when management corrects misconduct;
 promotion; and
 wage increments.
S.A.Q 8.3
Highlighted causes of employee grievances are:
Application of the rule book: Whenever management uses the rules which workers are very much aware
of to correct bad conducts by the workers, union sees it as intimidation and unfair treatment. Hence, they
will complain to management/employer which if not well managed results in grievances.
Lengthy agreement, which will usually result in inability to implement the agreements, is another cause
of employee grievances. A typical example of this was the last federal government-ASUU agreement.
Most of the agreements signed by both parties were not well defined, bulky and not implementable based
on the economic realities.
S.A.Q 8.4
In order to resolve employee grievances as quickly as possible, the following steps must be employed.
i. Define the purpose for employee grievances.
ii. Ensure that reported complaints get speedy attention.
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iii. Only those who are in the right line of command should settle employee grievances.
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Appendix 9: Answers to self-assessment question for study session nine
S.A.Q.9.1
Unemployment denotes a situation where people who are willing and able to work do not find jobs at the
existing wage rate. For a person to be referred to as unemployed, he or she must be qualified for a job,
willing to work at the current wage rate and unable to find a job. Unemployment is considered to be
involuntary situation as individuals who refuse job offers at prevailing wage rate are voluntarily
unemployed known as equilibrium unemployment.
The stock of unemployed in a particular economy is referred as unemployment level, defined as the total
labour force minus the number of people doing wage paying jobs plus entrepreneurs, that is, self-
employed individuals. Hence, unemployment rate is written thus:
Unemployment rate = Level of unemployment

Labour force
In a nutshell, unemployment includes a condition (being out of job); an activity (searching for job); an
attitude (desiring a job under certain conditions); and a need (needing a job).
S.A.Q.9.2
Classical Economists opine that full employment occurs at all times in the economy, to them full
employment is a normal situation in the economy. Based on this assumption, unemployment occurs when
there is wage rigidity and interference in the working of free market system usually caused by trade
unionism, minimum wage legislation, among others. Full employment exists when all willing and able
workers ready to work at present wage rate get engaged. Classical theory clearly states that those who are
not prepared to work at the existing wage are not unemployed but are voluntarily unemployed. At the
equilibrium real wage, all willing workers get employed. This means, classical economists ruled out the
possibility of involuntary unemployment.
Keynes also consider full employment to be the absence of involuntary unemployment, which means full
employment is a situation in which everybody who desires to work gets one. He assumes that with given
resources; real wages and the volume of output are co-related, so that, an increase in employment can
only occur if the wage rate falls. Keynes based his argument on strengthened effective demand in order to
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bring about reduction in real wages, not money wages. Demand-deficient leads to unemployment of
labour in that people unemployed will be willing to work at less than existing real wage. If effective
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demand increases perhaps, employment level will go up at a real wage equal to, or less than, the existing
one, until a point comes, at which labour market clears. Keynesian view of employment involves three
conditions namely: reduction in the real wage rate; increase in effective demand; and inelastic supply of
output at the level of full employment
S.A.Q.9.3
Unemployment is viewed as frictional, structural, cyclical or demand-deficient. Frictional unemployment
arises because it takes time and resources for workers to move from one job to another, either voluntarily
or involuntarily amidst sufficient job vacancies. Frictional unemployment denotes short-run job/skill
matching hiccups which last a few weeks.
Structural unemployment occurs when firms are changing or remodelling their business structure and as
such have to reduce the level of output consequently leading to temporary downsizing. Also, structural
unemployment reflects the time taken by workers to acquire human capital. Structural unemployment
denotes long-run adjustment problems that tend to last for years.
When unemployment is above frictional plus structural, it is known as cyclical unemployment. Cyclical
unemployment refers to unemployment caused by business cycle. It is closely related to demand-deficient
unemployment. During economic recession or doom, demand falls consequently leading to shrinking
revenue and profit, hence firms are left with no choice than to reduce their workforce in order to
accommodate present realities. A cut in the number of workers will definitely create demand deficient
unemployment, since workers who lost their job cannot maintain their consumption level due to the lost
income. In recent time, debate on unemployment centres around two major divisions, that is, voluntary
and involuntary unemployment. Voluntary unemployment occurs when a person chooses not to work or
accept job offer for which he/she is qualified at the going wage rate and conditions probably because he
has means of livelihood other than paid employment. Involuntary unemployment exists when persons or
individuals cannot obtain work even if they are willing to accept lower real wage or poorer conditions
than similar qualified workers who are currently in employment.
S.A.Q.9.4
If the economy begins with only voluntary unemployment, reduction in unemployment and increase in
output are mainly achieved by supply-side policies. These policies either shift labour supply curves or
reduce distortions that hinder the economy from getting to equilibrium points. Whenever firms demand
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the skills that differ from what the labour force possess, skill mismatch occurs and raises unemployment
level. When mismatch becomes larger, workers have harder tasks to perform, and people probably will
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get stuck in unemployment. Policies that will rebuild work habit in the employees will help address this
problem.
Another supply-side determinant is an increase in unemployment benefits relative to wage rate which
encourages some workers to join the labour force without genuine intention to search for job but to enjoy
state largesse. The state must put in place measures that will ensure unemployment benefits do not rise
more than necessary.
Rising trade union bargaining power and recognition from government ensure higher real wage rate
leading to involuntary unemployment. On the other hand, shrinking trade union power increase the
number of workers who accept job offers at equilibrium wage rate thereby reducing equilibrium
unemployment.
The vehicle for reducing trade union power and influence is privatisation of state owned enterprises which
automatically removes government as the last resort funder of union wage claims.
S.A.Q.9.5
International Labour Organisation reported that an estimated 201.8 million people were jobless in 2013,
that is, an increase of about 5 million unemployed in one year.
Youth were the worst hit with 74.5 million unemployed in 2013, an increase of more than 700,000. The
youth unemployment rate soared to a record peak of 13.1 percent; more than double the 6.1 percent rate
for the whole workforce and almost three times the adult rate of 4.6 percent.
Youth unemployment and its damaging effects are particularly prevalent in three regions namely:
Developed economies and Euro-zone; the Middle East; and North Africa. In these regions, youth
unemployment rates have continued to rise since 2008. Euro zone is yet to come out of the wood as
unemployment rate in the region is still very worrisome.
Even with these disturbing figures, the real level of unemployment is underestimated as they rely on
official government statistics that do not count those who have run out of jobless benefits in developed
economies, the underemployed, those in the informal sector in the rural areas and individuals who have
stopped searching for jobs.
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Appendix 10: Answers to self-assessment question for study session ten
S.A.Q.10.1
Unemployment has become one of the most debated issues in Nigeria. The unemployment situation has
changed from previous position marked by prolonged period of unemployment and mismatch, to one in
which graduates of tertiary institutions have to wait more than necessary for a long time before getting a
first job – if at all. At the beginning of this millennium, employment crises emerged as the most
challenging issues confronting many world economies including Nigeria.
Nigeria has one of the highest levels of youth unemployment in the world. World Bank reported about 38
percent while various local agencies reported about 50 percent. These are mostly young adults that have
graduated from universities and polytechnics or institutions of higher learning. Available estimate shows
that about 1.6 million persons, mostly young adults, graduate annually while about 3.8 million others are
certificate carrying youths that have no formal education, or have completed primary or secondary school,
or dropped out from tertiary institutions all of which are annually poured into an already inundated labour
market.
Furthermore, unemployment has been labelled as a major threat to social security. Nigeria’s
unemployment crisis is more serious than that of her counterparts on the continent. For instance, South
Africa’s unemployment rate is currently standing at 25.2%, and in Ghana it was about 14% in 2010, while
Nigeria is around 37%.
This situation is pathetic considering the fact that the country is blessed with abundant natural and human
resources capable of providing employment for the teeming unemployed.
S.A.Q.10.2
In line with theoretical explanation, unemployment is either voluntary or involuntary. Unemployment can
be explained from this broad division but for the sake of clarity, specific types of unemployment in
Nigeria are discussed as follows:
Frictional unemployment: This unemployment occurs in Nigeria as a result of abundant jobs in one
location and little or nothing in other locations. It implies a period of waiting by new labour market
entrants as well as employed workers who are disengaged and hoping to get employment.
Structural unemployment: Structural unemployment is rampant in Nigeria. It occurs when labour market
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is unable to provide jobs for everyone who wants one, because there is a mismatch between the skill of
the unemployed workers and the skill needed for the available jobs.
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Cyclical unemployment: This unemployment arises from minimum wage fixing and activities of labour
union which tend to set real wage above market clearing wage hereby leading to large number of job
seekers not finding jobs.
Hidden unemployment: Hidden unemployment has to do with real unemployment and official
unemployment figures. Hidden unemployment occurs since the official statistics cannot capture all
unemployed individuals due to one reason or the other. Hidden unemployment is the unemployment of
potential workers that does not appear on official unemployment statistics due to how unemployment data
are gathered
S.A.Q.10.3
High level of corruption: Corruption is a dishonest or illegitimate behaviour, especially of people in
authority. It is an abuse of public office for private gain which usually involves embezzlement of public
funds, nepotism and falsification of facts and figures, etc.
Every Nigerian knows that corruption has done unimaginable harm to the economy. It has undermined
democratic institutions, retarded economic growth and development, and caused poverty in the midst of
plenty; it has prevented the country from making political, social and economic progress and ultimately
brought about high level of mass unemployment in the country.
Neglect of agricultural sector: Until early 1970s, agriculture remained the mainstay of Nigerian economy. It
constituted the major income earning for the country and the largest employer of labour as over 90 percent of
the populace worked and earned their daily income from this sector. Following the rise in the price of
petroleum (oil boom) in 1970s, and the attendant huge foreign income, the agricultural sector suffered a
substantial decline till today. The huge finances from the oil sector have brought about the growth of public
and private enterprises which are concentrated in the urban centres. This later resulted in rural- urban
migration in which able body men who were farmers left their farm land to pick up menial jobs in the urban
centres which are scarce and inconsistent.
Infrastructural decay: This is yet another dismal factor that has rendered millions of Nigerians unemployed.
No doubt, the inability of successive administration to tackle the problem in the power sector has done an
innumerable harm to all aspects of the economy especially the manufacturing firms in the country.
The effects of globalisation: The process of economic globalisation in labour in Nigeria has had a tremendous
negative impact on Nigerian economy and subsequently on the reduction of poverty and unemployment.
Lack of enabling environment: Government does not create enabling environment for the unemployed
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Nigerians to create job or small scale business for themselves. The hostile business environment, triggered by
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poor infrastructure, predominantly inadequate power supply, and trade policies which allow all kinds of
imported goods to flood the country, has created high unemployment rate in the country.
S.A.Q.10.4
The social implications of unemployment are first felt at the individual and household level before
extending to the entire society and consequently the economy. The unemployed individuals are usually
unable to earn money to meet financial responsibilities and the basic necessities of life.
The effects of unemployment on the individual and household include income inequality resulting in
chronic and rising wide-spread poverty. The fact that a substantial proportion of the total population live
below $1 a day threshold confirms that poverty is truly widespread despite significant improvements in
the growth of GDP in recent years. Unemployment and poverty are related that one can easily confuse one
for the other. Although, it is possible for one to be employed and still be poor, this is likely to be a case of
underemployment.
Poverty makes it difficult to make investments in education and health that would increase a person‘s
productivity and possibility of getting better jobs. This is not only true for individuals; families face an
inter-generational poverty trap. Families face the choice between sending their children and young family
members to school and sending them to earn much-needed income. Irrespective of government efforts at
various levels to ensure that children have at least basic education, we still find millions of children
hawking on major cities and the Almajiris’ roaming the streets in northern Nigeria. Investigation usually
reveals that these children are from pauperised homes whose parents are either unemployed or
mendicants.
S.A.Q.10.5
Several solutions have been suggested as a means to tackle unemployment problem in Nigeria. If the
nation will make any formidable progress in this regard, we must do the following:
I. Fight corruption in all the sectors, whether private or public.
II. Ensure stable power supply because adequate power supply ensures a productive economy that is
capable of creating significant employment to local artisans, cottage, small and medium scale enterprises.
Hence, there is need for a revolution in the power sector. If the power supply is significantly improved,
many industries that have either collapsed, closed shops or relocated to other neighbouring countries
would return and commence operation which implies employment for more Nigerians..
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III. Agricultural sector should be given proper attention. Government at all levels should recognise the
activities of rural farmers and provide them with extension services that will transform the entire
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agricultural value chain. No doubt, the present administration’s agricultural programme is commendable
as many impediments have been eliminated but more is required in order to achieve expected results.
IV. The role of local entrepreneurs in economic development cannot be overemphasised. Hence,
government should create an enabling environment for small and medium scale enterprises (SMEs) to
survive and grow. The government and private individuals should provide start-up capital in form of loan
or grants to those who want to go into business and become self-reliant or self-employed and
consequently employ others.
V. The educational system should be made functional. To achieve this, emphasis should be laid on
entrepreneurship education so that students would acquire the basic skills needed for self-reliance before
graduation, even from post primary schools.
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GENERAL INTRODUCTION

At the end of this study session, you should be able to:

1.1 define labour economics;

1.2 explain the reasons for studying labour economics;

1.3 explain the labour market;

1.4 examine the Nigeria labour market; and

1.5 discuss the problems of labour market.

1.1 Definition of Labour Economics

The actors in the labour market

Government establishes the environment by providing training, unemployment insurance, workers

1.2 Why Study Labour Economics

1.3 Labour Market

1.4 Labour Market in Nigeria

days of slavery and colonial era.

1.5 Problems of the Labour Market

due to cultural, historical and structural differences.

place and as such labour is the most important factor of production.

demanders of labour services.

production of goods and services.

Freeman, R. B (1987) "Labour economics," The New Palgrave: A Dictionary of Economics.

Umo, J. U, (1986); Economics; An African Perspectives, Johnwest, Lagos Nigeria.

DEMAND FOR LABOUR AND SUPPY OF LABOUR

Learning Outcomes for Study Session Two

2.3 define supply of labour; and

2.4 discuss the determinants of labour supply.

2.2 Determinants of Labour Demand

MRPL : Marginal physical product x price of output per unit

A numerical example of marginal revenue product is shown in the table below

Table 2.1 Marginal Revenue Product of Labour Under Perfect Competition

Table 2.2 Marginal Revenue Product of Labour Under Imperfect Competition

3 5 100 40 8.70 348

4 5 150 50 8.20 410

5 5 210 60 7.90 474

6 5 280 70 7.70 539

7 5 360 80 7.00 560

8 5 430 70 6.80 476

9 5 450 20 6.50 130

2.2.3 Assumptions of marginal revenue productivity theory

Marginal Cost of Employing Labour

Marginal Revenue Product of Labour

Fig 2.1: Profit Maximizing Level of Employment

2.3 Shifts in the Demand for Labour

2.3.1 The determinants of the elasticity of the demand for Labour

2.4 Labour Supply

Summary of study session two

in the production changes.

Self-assessment questions for study session two

Economic Literature, Institute for Research on Poverty Reprint no. 210.

Study Session Three

Learning Outcomes for Study Session Three

3.2 discuss types of human capital;

3.3 state the effects of education on human capital;

3.4 discuss the cost of education; and

3.5 discuss the benefits of training.

3.1 Human Capital Development

long way in stimulating economic growth.

3.2 Types of Human Capital Development

3.3 Education and Human capital

would suggest that earnings and experience are to increase proportionately.

3.4 Cost of Education

3.5 Benefits of Training

Self-assessment questions for study session three