Employment Elasticity of Output: Empirical Evidence from Nigerian Real Sector

Abstract

This paper presents an empirical analysis of the responsiveness of unemployment to variability of real sector output in Nigeria over the period 1980-2016. The real sector output is captured by the productivity of the agricultural, industrial and service sectors while national unemployment rate is used to measure the level of unemployment in Nigeria. While national unemployment data was obtained from the National Bureau Statistics, data on the key indicators of real sector productivity was sourced from the Central Bank of Nigeria Statistical Bulletin. The Stock-Watson Dynamic Least Squares (DOLS) technique was utilized for the cointegrating regression analysis. The Phillips-Perron unit root test results reveal that the variables are non-stationary at levels, but became stationary upon differencing. The Johansen-Juselius cointegration test result shows that the variables have long run relationship.  Evidence from the cointegrating regression analysis indicates that indicate that the industrial and service sectors outputs are negatively related to the unemployment while agricultural sector output has a positive relationship with unemployment rate. These findings demonstrate that there exist structural changes in sectoral employment in the Nigerian economy with the industrial and service sectors playing leading roles in absorbing the abundant labour resources in Nigeria. The Wald test result for coefficient restriction shows that coefficients of the regressors are significantly different from zero at 5 percent level, indicating that the regressors are jointly significant in explaining changes in unemployment rate. Based on the findings, the paper recommends among others that policy actions for growth and sustainability of industrial output should be put in place, properly executed and continuously monitored with a view to enhancing the employment elasticity of output in the industrial sector.