Relationship between output and unemployment

relationship between output and unemployment

PDF | This research note investigates the relationship between output and unemployment in Greece at a regional level through the. Mohd Noor, Zaleha and Mohamed Nor, Norashidah and Abdul Ghani, Judhiana ( ) The relationship between output And unemployment in. Euro area unemployment exhibited a downward trend from the introduction of box looks at the relationship between changes in output and unemployment in.

One way to see this is to recall that total output, or GDP, reflects a combination of several variables, including number of workers, the hours they work, and the efficiency with which they produce output.

To investigate this, we compare movements of each of these variables relative to GDP in this cycle with data from previous years. See Figure 2 Figure 2 Output gap vs. Labor force participation rate B. Hours per worker B. GDP per nonfarm hour Sources: Figure 3 GDP growth during recession decomposed Sources: As the first panel of Figure 2 suggests, labor force participation, or the fraction of the working-age population reporting that it is working or looking for work, has bounced around during this downturn.

Typically, labor force participation will fall in a downturn as potential workers realize their prospects are weak and withdraw from the labor force to pursue other goals or because they are discouraged. In the first year of the recession, this normal pattern failed as individuals remained in the labor force despite the weakening economy Daly, Hobijn, and Kwok However, bythis pattern had reversed and labor force participation dropped precipitously.

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Currently, the trend in the labor force participation rate is helping reduce, rather than boost, measured unemployment.

In recessions, the number of hours worked generally falls as firms cut back on overtime or regular hours in response to declines in demand. By reducing worker hours instead of reducing the workforce, firms lay off fewer workers.

relationship between output and unemployment

However, the second panel of Figure 2 does not support this hypothesis. The deviation in average labor productivity relative to the GDP gap is far outside the range plotted over time and is consistent with the rapid productivity growth recorded in The surge in labor productivity allowed employers to keep output steady while shedding workers and reducing hours of work in the economy.

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As such, it allowed unemployment to rise much more than expected given the change in GDP, breaking the normal pattern between the two measures observed over the past 60 years.

For simplicity of exposition, we show the decomposition in terms of output growth. This also serves as a robustness check on the gaps method which by definition relies on assumptions about potential output and the NAIRU.

Figure 3 shows the results of this decomposition. The figure plots the contribution to the percentage change in output associated with each of the factors.

relationship between output and unemployment

The decomposition also highlights the differences in the first and second half of the recession. Inthe situation changed. Employment fell precipitously, hours per worker declined, and average labor productivity surged, allowing GDP to hold steady.

relationship between output and unemployment

The analysis before us will help determine the causal relationship between output and unemployment. From to the real GDP of Nigeria has grown at an average rate of 3.

Federal Reserve Bank of San Francisco | Okun’s Law and the Unemployment Surprise of

However, this is what we propose to examine in this study. If the output has increased over the time and there is still a growth of unemployment especially of labour resources then there is a cause for concern. The objective of this article is to investigate the existence an Okun-type relationship in the Nigerian economy.

We propose to find the level of GDP growth rate that would translate to a favourable employment situation in the country. This paper is organised as follows: Theoretical Issues and Brief Survey of Literature 2. These include open unemployment both voluntary and involuntaryunderemployment the predominant form of contemporary labour underutilisationthe visibly active but underutilized which include disguised underemployment, hidden unemployment and premature retirementthe impaired and the unproductive people who can provide the human resources necessary for productive purposes but who struggle for long hours 2 with inadequate complementing resources to make their inputs yield even the essentials of life.

The unemployment situation in Nigeria is urban and rural in character Obadan and Odusola, A notable recent characteristic is the increasing number of educated unemployed. In the s and s, the problem of unemployment was prevalent among primary school-leavers. However, in the post-SAP Structural Adjustment Programme period, one of the key social problems is on how to tackle the issue of unemployed graduates Oladeji The relevance of the government in reducing the rate of resource natural and human unemployment is rooted in Keynesian propositions.

In a developing economy whose markets are laden with operational inefficiencies, the role of the government cannot be overemphasised. On the other hand, the Classicals are of the opinion that the competitive forces of demand and supply should be allowed to allocate resources given its efficiency with government playing a minimal role.

However, given the failure of the market system in efficient resource allocation the Keynesians advocated for the crucial role government plays in the economy in the bid to raise the level of aggregate demand, promote growth and ipso facto employment.

In effect, the Keynesian advocations significantly influence the International Labour Organisation ILO in its employment generation projects in developing countries.

relationship between output and unemployment

The Keynesian propositions also influence the adoption and proliferation of employment generation programmes in the developing economies. Although private sector employment in Nigeria has been based on productivity, market demand and profitability, the government at some points have influenced the employment decisions of the private sector.

On the other hand, employment in the public sector is influenced largely by policy regimes and development strategies. As an intervention, several employment generation policies have been implemented so far in the Nigerian economy. Actions in form of policy, programmes and laws have been taken and executed by successive governments to deal with the problems of employment and poverty.

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A synopsis of the National Development Plans reveals that they have had employment generation as a crucial focus over the years Obadan The first NDP had its main objective and target on the expansion and provision of opportunities for improved health, education and employment for citizens with special priority given to agriculture and industry as the custodians of great employment potentials and training of high level intermediate manpower.

The second NDP targeted making Nigeria a land with bright and full opportunities for all citizens giving priority to agriculture, transportation, manpower development in issues of resource allocation.

The third NDP aimed at a drastic reduction in the level of unemployment and an increase in the supply of high level manpower; which also found expression in the programmes and policies implemented under the fourth NDP. Also of worthy mention is the SAP intervention as proposed by the Bretton Woods Institutions which was adopted inafter which rolling plans were executed through annual budget.

In addition, several programmes have been designed for promoting human resource development and utilisation and poverty alleviation in Nigeria. Amongst others, the NDE was specifically charged with the responsibility for the design and execution of programmes to deal with the mass unemployment problem; articulating policies aimed at developing work programmes with labour-intensive potential; maintaining a data bank on employment and vacancies in the economy.

All these were with a view to providing a link between jobseekers and existing recorded vacancies Ogwumike, ; Iwayemi ; Oni In recent times, efforts have been made towards the prevailing problems of unemployment and poverty with a drive towards poverty alleviation and employment promotions. Poverty eradication programmes have laced recent economic policies.

Under such programmes, infrastructural development projects have also been implemented. Under the auspices of the NEEDS National Economic Empowerment and Development Strategy for instance, the deregulation of the telecommunications sector was employment- promoting, with the down-sizing of the public sector having a counter effect on employment.

Adebayo and Ogunrinola, Unemployment is seen as a great problem to global economic development. In recent years, both developed and developing countries have witnessed this problem, though the developed countries have been curtailing the rate of their unemployment.

However, in developing countries, especially in Africa, unemployment has been on a continuously accelerating rise in the economy, culminating in reduction of household income and living standards and concomitant rise in the level and incidence of poverty Kareem For instance, the unemployment in Africa was 9.

This means about 10 in every hundred people fit to be in the labour market are unemployed.

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Unemployment is one of the developmental problems that face every developing economy in the 21st century. International statistics portray industrial and service workers living in developing regions account for about two-thirds of the unemployed Patterson and Okafor, This is indicative that the rate of open unemployment as observed in most developing countries is a limited indicator of the employment conditions.

Employment generation has been seen as a vehicle for increasing the level of economic activity which ultimately translates to economic growth.

The situation of employment in Africa has become critical and labour absorption capacity knotty. Employment has been defined to mean a situation whereby an individual in the labour force bracket willing to work is engaged in a satisfactory economic activity while if otherwise are said to be unemployed. There are many types of unemployment identified in the literature, ranging from frictional, seasonal and cyclical to structural unemployment. ILO consented to the stance that the problem of unemployment among youths in Africa and Nigeria is a current and major socio-economic problem.

Nigeria's Unemployment and GDP Growth Rates In Nigeria, the record of registered unemployment is very low owing to the lack of incentives such as unemployment benefits cum job loss benefits such as is obtainable in developed countries to prompt individuals to report for job loss.

Consequently, majority of unemployed find employment in the informal sector of the economy, where adverse employment conditions rather take the form of increased underemployment, casual employment or informal self employment which are scarcely registered. The data on employment or unemployment are grossly inadequate.

Patterson and Okafor, The National Bureau of Statistics in a labour survey report presented the incidence of unemployment rate in the country. Unemployment was, in the survey, defined as the proportion of the labour force who were available for work but who did not work in the week preceding the survey for at least 39hours.

It can be observed that total national unemployment rate has meandered over time for the Nigerian economy, however there was a sharp increase from The estimates were found to be sensitive to the choice of models. The study found mixed evidence of asymmetric behaviour but strong evidence of structural breaks occurring around the s, after which time most countries began to experience a smaller output loss associated with higher unemployment.

Kwani had it that Arthur Okun formalized the hitherto observed inverse relationship between unemployment rate and real output growth into a statistical relationship. As observed by Kwani estimates of Okun coefficient tend to be sensitive to the model specification and the method of estimation.

Further, the study showed that the pooled estimates for Europe were smaller than the estimates for the remaining elements in the sample.

Single country studies on the Okun relationship are replete in the literature. However, the estimates of the coefficient tend to vary among countries over time. The issue of asymmetry in the output-unemployment relationship examined by Okun in has been a subject of recent considerations. By asymmetry we mean that that the response of unemployment to output growth is different when the economy is expanding from that when the economy is contracting.

This is as contrary to the conventional specification, which encompasses symmetry in the sense that expansions and contractions in output have the same absolute. Dornbusch et al posited that forgone output is the major cost of unemployment, and if the loss is very high it could lead to recession. Watts and Mitchell found long term relationship between unemployment and capacity utilization is not stable.

The empirical results of Prachowny show that changes in output will lead to changes in efficiency of production. It identified other determinants of output as the amount of time worked and exploitation of facility space. They conclude that that GDP growth depends on the level and rate of change of labour resource utilization.

relationship between output and unemployment