Labour Productivity, Employment and Output Growth in Nigeria 1990 - 2018

Abstract

Labour productivity growth remains an engine of output growth as it increases a country’s capacity to create better opportunities for decent and productive employment. However, the link among these macroeconomic variables in Nigeria remains unclear, as reflected in its economic growth pattern, which precludes an increase in employment. Labour productivity in Nigeria averaged N453.89 per hour during the 1990-2018 period. During the same period, output growth averaged 5.26%, while the unemployment rate remained high at an average of 22.45%. Few studies have carried out specific analyses on the variables but paid little attention to the link among them. This study, therefore, investigated the relationships among labour productivity (LP), employment (EMP), and output growth (YG) in Nigeria during 1990-2018. The causal relationship among the variables was tested using the Granger Causality test. The basic Cobb-Douglas production function, derived from the neo-classical growth theory, provided the framework. A Solow growth model that captured the relationship among total factor productivity, employment, and output growth was explored. The Autoregressive Distributive Lag (ARDL) approach was used. The model incorporated other variables such as labour force (LF), labour force participation rate (LFPR), population (POP), dependency ratio (DR), total hours worked (THW), and unemployment rate (UR). Data were collected from World Development Indicators Database and National Bureau of Statistics’ Annual Abstracts of Statistics. Three models (LP-YG, EMP-YG, and LP-EMP-YG) were estimated. Serial Correlation (S-C), Heteroskedasticity (H-T), and Stability Test (S-T) was carried out to ascertain the reliability of the estimates. All estimates were validated at α ≤ 0.05. A bi-directional causality existed between labour productivity and employment, indicating a feedback effect between the two variables, while no causality existed between labour productivity and output growth. The LP-YG model results showed that LP (0.65, 0.25) significantly increased YG in both the long and short run. In the EMP YG model, EMP (0.33, 0.69) had a positive and significant impact on YG both in the long and short run. Further, the LP-EMP-YG model results revealed that LP-EMP (0.55, 0.76) had a positive and significant net effect on YG in both the long and short run. The results of other variables considered depicted that LF (0.01, 0.05), LFPR (0.43, 0.79), THW (0.07, 0.66), DR (0.56, 0.85) and POP (0.43, 0.46) significantly boosted YG both in the long and short-run while UR (-0.26, -0.29) caused a decrease in YG in both long and short-run in Nigeria. The insignificant coefficients of S-C (0.57, p=0.70), H-T (0.77, p=0.80), and S-T of 5% were indicative of a good fit. There is no interdependence among labour productivity, employment, and output growth in Nigeria. Output growth that emanated from increase in labour productivity did not influence employment. Therefore, there is need for a policy that would allow labour productivity induced growth to boost employment generation in Nigeria.