Effect of Unemployment and Inflation on Wages in Nigeria

AbstractThe twin macroeconomic variables that are significant in influencing wages in developing economy are; inflation and unemployment. Therefore, this paper examines the effect of unemployment and inflation on wages. To achieve the set objective, three models, namely; Ordinary Least Square (OLS) method, Augmented Dickey- Fuller (ADF) technique and Granger causality test were thoroughly subjected to quantitative analysis. The result of the regression revealed that the coefficient of unemployment is positive and statistically significant which implies that unemployment significantly influence wage rate whereas inflation is positive but has no significant effect on wage rate. Moreover, result of the unit root indicates that all the variables in the model are stationary while, the result of causality test suggests that unemployment Granger causes wage rate and not inflation. This work is of practical significance in terms of economic policies likely to minimize inflationary spiral and unemployment rate in the country and theoretically, it contribution to the understanding of long-run nature of the variables. Also, it will trigger future researches and re-awaken government on its social responsibilities. Thus, the major policy implication of these results is that concerted efforts should be made by policy makers to increase the level of employment opportunities by diversifying the economy. Also, payment of unemployment benefits by the government and promoting vocational education so as to minimize the rate of unemployment.Keywords: Unemployment, Inflation, Wage rate; Granger causality, ADF(ProQuest: . denotes formulae omitted.)INTRODUCTIONNigerian economy since the attainment of political independence in 1960 has undergone fundamental structural changes from a high productive economy to a weak productive economy. Unfortunately, these domestic structural shifts have not resulted into any significant, meaningful and sustainable economic growth and development of the country. Unemployment, inflation and wages are of significance in any macroeconomic decision making. These variables are subject of social and economic life of every country. Thus, Unemployment, inflation and wages are termed as continuous and unpleasant situation that describe the endemic nature of a country's economy. International statistic portrays that industrial and service workers living in developing regions of the world account for about two third of the unemployed (Patterson et al, 2006). Further to this, Nwaobi (2009) posited unemployment could lead to high social vices among youth and prostitution by young females which have a serious effect on the performance of the economy. More so, Friedman (1977) argued that inflation uncertainties affects both the inter-temporal (Through its effect on interest rate) and intra-temporal (Through its effect on relative prices in the presence of nominal rigidities) allocation of resources. In a different study, Oluwole (1994) wrote that wages and prices are jointly determined and that income policies and wage policies significantly contribute to increase in frequent strikes by Nigerian workers. The wage policies of the government have a positive influence on the incidence of strikes. Nigeria as monoculture economy has experienced series of strikes as a result of wages and various commission and policies have been constituted in order to determine the acceptable wage rate and the influence of government on wage determination. The ultimate macroeconomic goals which every government strive to achieve in order to ensure sound macroeconomic policy are maintenance of relative stability in domestic prices, attainment of a high rate of employment or full employment, achievement of a high rapid and sustainable economic growth, maintenance of balance of payment equilibrium and exchange rate stability.Many economist and scholars carried out some deep researches about the relationship of macroeconomic variables from different angles. …