Unemployment is one of Nigeria’s major problems today. Many experiments have been conducted to look at the factors that influence unemployment in macroeconomics. Given the recent instability in exchange rates, which has impacted most of the main variables in the Nigerian economy, it is critical to examine the relationship between exchange rates and unemployment in Nigeria using annual statistics.
During the time, it was discovered that the Real Exchange Rate has a positive impact on unemployment. Unemployment rises when the exchange rate is high. The paper recommends that attempts be made to raise the supply of foreign exchange earnings in the world in order to reduce the country’s excessive demand for it. This will result in the manufacture of more products and the industries that will be developed for such manufacturing would consume more unemployed workers.
Storyline
The relationship between the real exchange rate, unemployment, and economic development is currently generating a lot of interest in Nigeria. Unemployment has now become a major problem for the Nigerian government and the Nigerian people as a whole. Nigeria’s unemployment woes are palpable because of the country’s young people, also known as the Youth. It should be recalled that the government of Nigeria derives the majority of its income from foreign exchange earnings from the sale of mineral materials. As a result, the exchange rate is a crucial element in the economy as a whole.
From a different angle, exchange rate instability induces significant shifts in the country’s economy. While exchange rate volatility is essential for macroeconomic stability, in the long run, it is said to have negative effects on an economy in the short term. As a result, exchange rate volatility should be studied more carefully and closely as a risk factor, as these variations will lead to risk-averse investors having fewer investments, resulting in a decrease in the job rate. However, there are still some industries in the country that were not influenced by the current economic conditions, or vice versa was positively affected. Those are generally the industries of the financial sector that are linked to overseas transactions and people were actually able to generate some financial profits. This is the reason why Forex brokers in Nigeria are in a demand for this time being. On the other hand, Since the labor market is intertwined with other economic markets, it is regarded as a critical market in Azvaji and Asgari’s economies. In Nigeria, the labor market has seen an uptick in unemployment due to, among other things, population growth.
As a result, labor supply has outstripped demand. This surplus is growing exponentially, resulting in unemployment and a shortage of suitable jobs for the workforce, especially young people and university graduates.
Workforce employment is a critical issue that includes a variety of causes. Apart from the fact that labor supply is influenced by factors such as demographic increase, population and age distribution, emigration, and women’s participation rate, labor demand is influenced by factors such as investment volume, investment distribution, technology, efficiency, and economic growth.
In a market, the exchange rate has always been of considerable importance and sensitivity. When the exchange rate is calculated wrongly, it becomes more sensitive. As a result, the strategy of deciding the exchange rate is critical, and any kind of error in such a calculation must be avoided. In a typical economy, export is determined by the number of domestic rates, exchange rate, and demand. Due to changes in the amount of demand, changes in the exchange rate can trigger changes in the amount of export and import.
If the exchange rate rises, the price of imports rises, the volume of imports decreases, and domestic exports overtake imports, resulting in an increase in wages. As a result of this development, industries will expand and factories will expand to accommodate more workers.
However, lowering the price of exports will draw international markets, raising the country’s competitiveness and thereby increasing the volume of export. This raises demand in the region, which, combined with other stable conditions and supply attraction, contributes to an increase in domestic production. Increased exports lead to increased productivity, which raises the need for workers and, as a result, has a positive impact on jobs. Other variables, such as labor efficiency, GDP, and the actual exchange rate, have a positive or negative impact on unemployment. As a result, it is possible to hypothesize that changes in the exchange rate have an effect on unemployment.
Results
In Nigeria, the exchange rate is a crucial factor that influences unemployment. The actual value of the domestic currency fluctuates as a result of real exchange rate uncertainty, causing variations in commodity and job levels. In Nigeria during the research period, short-run findings revealed a strong and substantial relationship between real gross domestic product and unemployment; a positive relationship between exchange rate and unemployment; a positive relationship between export value index and unemployment; and a negative relationship between import value index and unemployment.
As a result, In Nigeria, there are several causes that contribute to unemployment. Exchange rate volatility, actual gross domestic product, export value index, and import value index were all examined in this study. The findings indicate that exchange rate fluctuations, actual gross domestic product, and export value index had favorable and substantial effects on unemployment in both the short and long runs, but the import value index had a negative relationship with unemployment in the short term.
A robust exchange rate policy should be followed in order to increase the flow of foreign exchange into the economy. Currently, demand for foreign currency exceeds supply, and as a result of the high exchange rate, unemployment is high. However, with a high supply of exchange rate, factories may be built to manufacture more commodities, resulting in the jobs of the country’s teeming employable labor force.
