Employment – Real Wage Relationship and Economic Growth In Nigeria

Abstract

One of the major socio-political and economic issues in a contemporary Nigeria is the creation of adequate employment opportunities for the growing numbers of unemployed people. While several factors including the demand – supply anomalies have been a major contributor to the phenomenon of rising unemployment, efforts by the government to tackle the problem have remained a mirage. This paper attempts an investigation of the relationship between real wage and employment and their effect on economic growth. The critical question being addressed in this study is whether Keynes was right in his proposition that wage reductions are necessary to induce employment in the short run. Using a Granger – causality cointegration framework, this study finds a statistical evidence for a long-run relationship between real wage and employment for the period 1990 – 2009 and firmly rejects the hypothesis that wages cause employment in the short-run. It supports the Keynesian view that real wage fall because employment increases probably due to an increase in demand. The result further reveals that real wage reduction is not sufficient to induce an expansion of output and employment and that unemployment can be fought through the demand – side intervention. It concludes that Keynes was right after all.

KEY WORDS: Real Wage, Employment, Granger – causality.