IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 10, Issue 3 Ser. I (May. – June 2019), PP 82-89 www.iosrjournals.org DOI: 10.9790/5933-1003018289 www.iosrjournals.org 82 | Page Analysis of the Effect of Unemployment on the Economic Growth of Nigeria Chima Chidi Iloabuchi Abstract:This paper sought to estimate the impact of unemployment on the economic growth in Nigeria, using time series data from 1999 to 2017. The data used were sourced from the Central Bank of Nigeria database and World Bank’ data Bank. Explanatory research design was employed using Augmented Dickey -Fuller, Philip- Perron Unit root tests, OLS and pair-wise Granger Causality. The major objective of this work is to analyse the impact as well as the direction of the causality among the GDP which proxies for economic growth and in line with Okun’s law. The Granger causality test shows a unidirectional relationship between unemployment and Nigeria’s economic growth. The Population growth result which is also included in model is contemporaneous to the economic growth. The linear relationship of the population growth signifies that government should encourage natality rate with robust quality education and human capital development. The study recommends provision of development in other economic sectors which will actually diversify the economy and create employment to the teeming unemployed youth in Nigeria. Keywords: Economic Growth, Unemployment, OLS, Granger Causality. Jel Code: E24, C09, C52 --------------------------------------------------------------------------------------------------------------------------------------- Date of Submission: 08-05-2019 Date of acceptance: 23-05-2019 --------------------------------------------------------------------------------------------------------------------------------------------------- I. Introduction One of the macroeconomic problems facing Nigeria is the issue of unemployment. Attaining high-level output and sustainability with a low level of unemployment is one of the macroeconomic objectives of government in Nigeria. According to the National Bureau of statistics, (NBS, 2017), there is no universal standard definition of unemployment as various countries adopt definitions to suit their local priorities. The (NBS, 2017), like most nations in the world, incorporate a variant of the International Labor Organization definition. According to (ILO in NBS report) , unemployment is the proportion of those in the labor force (not in the entire economic active population, nor the entire Nigerian population) who were actively looking for work but could not find work for at least 20 hours during the reference period to the total currently active (labor force) population, (NBS, 2017). Accordingly, one is unemployed if s/he did absolutely nothing at all or did something but for less than 20 hours during the reference week. However, Nigeria uses the ILO‟s definition, or a variant of it to compute unemployment. The ILO definition covers persons aged between 15-64 who during the reference period (which is usually the week preceding, the time the survey is conducted) were available for work, actively seeking work, but were unable to find work. It is worthy to know that, the international definition of unemployment, underemployment or employment is not a function of the quantity/suitability of wages earned nor it is a function of job Satisfaction. Rather, employment, underemployment, and unemployment are treated as a function of a person's involvement or otherwise in economic activity even if that activity is performed solely to make ends meet and not for satisfaction or enjoyment (ILO, 2018). The suitability of wages or job fulfillment is covered under economic welfare indices such as the living standard, poverty rate or happiness index, but not determining whether one is employed, unemployed or underemployed, which is a function of economic engagement. Some of the social and economic implications of unemployment in Nigeria include: social exclusion, increase in the crime rate, social unrest, and the brain drain of the human capital(Adebayo, 2013). Income inequality and widespread poverty in Nigeria is as a result of high unemployment. Therefore, it is imperative to understand the impact between unemployment and economic growth and to determine the directions of the causality. The political transition from military rule to democratic dispensations in Nigeria‟s third republic led to the era of economic transformation. In order to comprehend the inherited economic saga in the autocratic rulership of the military, characterized by unevaluated adopted economic policies which trigged structural unemployment, income inequalities, and widespread poverty among the population. Many years have gone since the inception of the new democratic era, there is still a high level of unemployment and it is a show of concern to the government.