1.1 Background of the Study
Monetary policy rests on the relationship between the price at which money can be borrowed and the total supply of money in the economy. It is generally referred to as being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy rapidly, and contractionary policy decreases the total money supply, or increases it slowly. When a central bank embarks on an expansionary monetary policy, it does so to stimulate domestic economy and reduce unemployment, while contractionary policy involves raising interest rates to combat inflation.
According to Adekanye (1986), monetary policy can be described as the various ways by which the Federal Government and the Central Bank of Nigeria (CBN) seek to influence the supply of money and credit as well as their price asindicated by interest rate in order to achieve stated or desired economic goals.
Chukwudire (1993) refers to monetary policy as measures to control the availability, cost and use of money and credit in the economy for the purpose of achieving stated objective. He went further to say that monetary policy covers a broad range of policies and measures which include not only such monetary measures that influence the availability, cost and use of money, but also those non-monetary measures which influence monetary situations. He argued that in so far as these non-monetary measures such as price control, income policies, physical control, budgetary measures that deal with inflation aimed at influencing monetary are involved in monetary policy.
Today, unemployment may be viewed as one of the most intractable problems facing Nigeria since 1960 and climaxing in these millennium years. It has become a cankerworm that is now eating deep into the fabric of the Nigerian economy. The existence of high unemployment in any economy is a source of concern to policy makers as well as the general citizenry. According to Englama (2001), the issue of persistent unemployment is now frightening in Nigeria considering the fact that it is widening poverty, misery, and social unrest, ethnic cum religious crisis, robbery, kidnappings, terrorism and other social vices. These have posed a great challenge to policy makers/planners, human resource experts and persons dealing with unemployment programmes, planning and implementations.
Monetary policy has a dual mandate of guaranteeing high employment rate and price stability. At one time or another, economic agents around the globe have also tried to use monetary policy to achieve almost every conceivable economic objective with economic growth and low level unemployment often high in the list. As a case in point, Sellon (2004) posited that when the Federal Reserve of the United States raises its target for the federal funds rate, other rates rise, reducing interest-sensitive spending and slowing the economy, and when it is lowered, other rates tend to fall – stimulating spending and spurring economic activity.
The official unemployment rate steadily increased from 12.3 per cent in 2006 to 23.9 per cent in 2011 (ILO) while the revised rate records shows an increase from 12.3 per cent in 2006 to 19.7 per cent in 2009, but declined to 6.0 per cent in 2011. Between 2013 to first quarter 2014, the unemployment rate rose from 24.7 per cent to 25.1 per cent (ILO), while the revised rate shows a decrease from 10.0 per cent to 7.8 per cent.
The government through the monetary authority promote monetary stability and evolve an efficient and reliable financial system through the application appropriate monetary policy instrument and systemic surveillance. Despite these efforts of government in boosting the performance of financial sector, the sector is still not witnessing significant development in relations to solving the problem of unemployment.
In an effort to encourage employment generation using monetary policy, interest rates were liberalized (deregulated) and were also controlled on several occasions. The failure of these polices and the onward escalation of unemployment problem necessitated the reason for determining the impact of selected monetary policy on unemployment in Nigeria.
One of the major objectives of monetary policy in Nigeria is price stability. But despite the various monetary policy instruments that have been adopted by the Central Bank of Nigeria over the years, inflation still remains a major threat to Nigeria’s economic growth.
Disappointedly, the average growth of the aggregate economy was accompanied by increased in the average growth of unemployment and poverty rates from 3.93% and 42.07% respectively between 1981 to 1990 to an alarming rate of 14.7% and 63.99% respectively between 2001 and 2010. Also, within this period the disparity in income distribution (measured by Gini Index) rose from 34.18 in 1980 to 42.9 in 2004 and further to 48.8 in 2013 (World Bank Indicators, 2013).
However, unemployment in Nigeria is primarily youth unemployment, especially secondary school leaver for instance in 1986, they constituted 65.3 percent of all the employed in Nigeria. The figure for 1987 for this group was 70.7 percent when figures are desegregated by location figures for urban unemployment were higher for all the years under survey with the exception of 1986. The national figures for unemployment were 6.1 percent in 1986. It tell slightly to 5.3 percent in 1986 for all the year data indicate that unemployment was higher in the urban than within the rural area.
This study is therefore concerned with finding out the impact of selected monetary policy on unemployment in Nigeria. Also, intend to investigate clearly the extent to which these policies have contributed to worsening the problem of unemployment or alleviating it completely through these question;
Does monetary policy have any impact on unemployment in Nigeria?
What is the relationship between monetary policy and unemployment?
The general objective is to determine the impact of selected monetary policy on unemployment in Nigeria for the period of 1980-2015. Under this general objective, the specific objectives this study covers are;
1.4 The statement of hypothesis
The study is guided with both null and alternative hypothesis which is denoted using Ho for null hypothesis and Hi for alternative hypothesis.
Ho– Monetary policy has no significant effect on unemployment rate.
Hi- . Monetary policy has significant effect on unemployment rate.
1.5 Significance of the Study
This research work is being carried out to determine the overall impact of monetary policy on unemployment. The findings of this work will be of immense use and benefit to government Ministries, National Directorate for Employment and Monetary Authorities (Central Bank of Nigeria), Department and Agencies at federal level in solving some macro-economic problems, state and local, policy makers and intellectual researchers who may be willing to improve the work subsequently. Lastly, it will educate the public on various government policies as related to monetary and unemployment.
1.6 Scope of the Study
The research work deals with the impact of selected monetary policy on unemployment. This research work covers the period of years (1980-2015) which is sufficient and suitable for