The general cause of urban unemployment in Nigeria is the fact that supply of labour is greater than the demand and, therefore, they're in a disequilibrium in the urban labour market. The imbalance between supply of labour and demand for labour can be said to be the result of several factors, which affect both the supply of and demand for labour.
Some of these factors are now discussed.
Activity 3: What factors are responsible for urban unemployment in Nigeria?
3.1.1 Wage Rate
The classical or the Keynesian analysis of wage rate and unemployment would be sufficient if the rate of unemployment was relatively uniform as between urban and rural centres. But the unemployment problem in Nigeria is mainly urban in nature. In discussing the relationship between wage rate and unemployment, the critical explanatory variable is the wage rate differential between urban and rural workers. Since public expenditures can be regarded in some cases as wage payment in kind, the effective differential between urban and rural workers should take into account the wage effect of public expenditures.
Now, if the rural-urban migration will increase and unless employment opportunities are created in the urban areas equal to the increased migration, unemployment in urban areas will increase. The Todaro labour migration and employment model seems to explain the Nigerian situation, to some extent. The rural-urban income differential has been in favour of urban workers.
From the above, we may rightly conclude that the increase in the rural-urban wage differential during the 1960s must have contributed to increase in urban and total unemployment during the 1960s. to buttress this, for example, the Adebo Commission found that the average income of fanners ranged from N68 to N144 per annum in contrast to the minimum pay of the urban worker which ranged from between N168 and N216 per annum. Thus the minimum wage for urban workers was found by this Commission to be from 1.5 to 2.5 times the average income of the farmers.
Activity 4: Does education affect the supply of labour in Nigeria?
3.1.2 Expansion in Education and the Supply of Labour
The very rapid upsurge in unemployment can be traced, to a very large extent, to the rapid development of primary education which does not give the recipients any skill that could enable them get good jobs. The supply of primary school graduates far outstrips the demand for this category of workers. Unfortunately, only a small proportion of the primary school leavers were absorbed by the secondary schools. For example, according to the Second Plan document, out of an estimated out-run of 240,000 primary school leavers in 1966, only 70,00 could be offered places in secondary schools. A further dropout rate of 400,000 students contributed to the pool of youths who had no skill to offer employers and yet they were in search of wage employment. The supply of secondary school graduates has also been out of proportion with the demand for their labour.
The problem of unemployment among university graduates and high level manpower has begun in the southern part of Nigeria and this is attributable to the fact that university and technical college education has little or no practical work content. The private sector, for instance, has tended in recent years, to recruit 1 out of 8 university graduates.
The problem of youth unemployment is much greater in the south than in the north where primary school education was generally not taken much advantage of. With the countrywide Universal Primary Education (UPE) scheme becoming compulsory in 1979, it has been projected in the Third National Development Plan that primary school enrolment will be 11.5 million by 1980. It is even estimated that during this period (1975-80) about 849,000 young persons would be turned out yearly from primary schools. And on the basis of 70 per cent primary to secondary school transition rate expected towards the late 1970s, it has been estimated that about 255,900 primary school leavers in addition to thousands of primary and secondary school drop-outs would join the labour force annually. The situation might be worse than what the 'Third Plan' would lead one to believe. This is because some states in the country have embarked on free education at all levels. We may not see the uncontrollable effect of this until these new sets of students graduate from secondary schools.
Activity 5: A part from wage differentials and education, what other factors affect the supply of labour?
3.1.3 Population Growth and Labour Supply
Population growth as a factor that influences the supply of labour. The size of labour force is a function of total population. Labour force in Nigeria is comprised of people in the 15-55 year age bracket. However, an increasing number of organisations are increasing their retirement age to 65 years so that in the near future, the potential labour force will increase further because of a change in definition of labour force. In the face of limited labour demand, the acceleration in the growth of the labour force has led to increased urban and total unemployment problem in Nigeria and this will continue to be so unless corrective measures are evolved to halt it.
3.1.4 Institutional Factors Contributing to Urban Unemployment
Moreso, there are institutional factors that contribute to the problem of urban unemployment. Geographical immobility of labour causes unemployment. In the Nigerian setting, the unemployment problem, especially among high-level manpower, is due, in large measure, to
institutional factors which lead to a restriction of human resource flow among various parts of the country. While it is now apparent that the southern states are over-producing some categories of high-level manpower with consequent urban unemployment (since most of them remain in the cities), it is also clear that most of the northern states suffer from acute shortage in almost all categories of high-level manpower.
Some northern states, after two years of independence still prefer expatriate labour to local labour even when expatriate labour is not as good as local. If a free flow of high-level manpower were permitted between the states, the problem of unemployment among high-level manpower would be reduced. The major institutional factors restricting the free flow is the policy of state governments that stipulate that civil servants must be state indigenes. This policy is now being extended to the private sector as some of the state government pressurize private companies to ensure that no non-state indigenes are employed in companies operating in the state.
Other institutional factors such as the ineffective operation of Labour Exchange (Labour Offices) and the "influence system" (or long leg system) of recruiting and the operation of the expatriate quota system tend to compound unemployment problem. Labour exchanges are few.
The "influence system" of employment operates in such a manner that unless the potential employee knows somebody of importance he or she may not be able to secure a job compatible with his skill even when a vacancy exists.
The expatriate quota, which makes influx of foreigners into Nigeria possible, clearly contributes to urban and total unemployment of high-level manpower. Many university graduates, even those in some scientific fields and engineering, have been known to remain unemployed in Nigerian cities while expatriates who are not better qualified perform such jobs.
3.1.5 Factor Proportion and Demand for Labour
It is sometimes suggested that the production functions in modern sector of developing countries reflect fixed factor proportions. There is need for a careful application of this theory in Nigeria. It is true that in Nigeria, the expatriate firms generally use a production function that reflects high capital intensity and fixed factor proportions. Accordingly, a reduction in wage, it is thought, may not increase the amount of labour demand. However, there is a large intermediate sector where the production function shows more variable factor proportions-this refers to the small scale industries, repair shops where more labour-intensive technology is used and the same applies to the government sector which is even the greatest labour employer.
Because of this, the factor proportion in these sectors will be more sensitive to wage rate changes. The possibility is high that the Udoji awards, which led to higher wages, has helped to press down the employment rate and, therefore, increased urban unemployment.
The Nigerian situation, to an extent, therefore, seems to corroborate a hypothesis that 'in the last two and half decades, there had been a high degree of negative correlation between rises in real wages and growth of employment in several African countries'.
3.1.6 Government Expenditure Policy
The government expenditure policy whereby most of government projects (industries and public utilities) are concentrated in urban areas at the utter neglect of the rural encourages mass exodus of rural unskilled labour from villages into the urban towns and, therefore, causes urban unemployment.
Various government policies (e.g. the numerous and sometimes over- generous industrial incentives) tend to encourage capital intensive and labour saving techniques of production in most of the urban industrial establishments. This aggravates the urban unemployment problem.
3.1.7 Attractiveness of the Urban Centres
Apart from the marked differences between urban and rural earnings, many potential migrants usually have little or no valid information about urban unemployment conditions.
There is the deceptive display of 'prosperity' by many city dwellers (even when unemployed) whenever they visit their homes in the rural areas. This gives a wrong impression and encourages some youths to migrate to the cities.
The Nigerian 'Social Security System' emanating from the extended family system whereby a relative may cater for a new migrant who may be unemployed for some time normally lessens the fear of joining the unemployed people in the urban areas.