The Reasons and Effects of the Unemployment and Inflation Existing - Research Paper Example

Analyze the reasons and effects of the unemployment and inflation existing in that economy and then suggest applicable solutions to cope these problems Name: Course: Professor: Institution: City and State: Date: Analyze the reasons and effects of the unemployment and inflation existing in that economyand thensuggest applicable solutions to cope these problems  Introduction The economic trends of a country determine the level of unemployment in that particular country.In a country where the economy is continuously growing, the level of unemployment is dropping continuously and vice versa. Unemployment has severe effects in a country and therefore all governments need to do what they can to minimize unemployment within their respective countries. Inflation when experienced in a country is very threatening to the economic development of the country.Inflation affects the purchasing power of consumers and also affects the production levels of firms thus resulting to generation of fewer revenues than before hence affecting the economic development of the country. In a country where the economy is continuously growing, the standards of living keep on improving, infrastructural development is experienced and the level of crime is low.In this report, the researcher will attempt to analyze and explain the reasons and effects of unemployment and inflation, advantages and disadvantages of the current fiscal and monetary policy, effectiveness of various economic reforms and effects of the balance of payments on exchange rates with respect to the Nigerian economy. Causes of unemployment Rural urban migration- This happens when people in the rural areas move to urban areas in search of employment.Henryexplains the rural-urban migration in terms of push - pull factors (34). The push factors include the pressure resulting from a rising man-land ratio in the rural areas and the existence of underemployment from seasonal cycle of the lack of infrastructure activities that make the rural life unattractive. He links rural-urban migration to the unattractiveness of rural life because of lack of basic amenities. When youths move to the urban areas in search of lucrative employment, there is concentration of social amenities that leads to neglecting of rural areas in the allocation of social and economic opportunities. Rapid population growth- The 2006 census in Nigeria put the populationat 140,431,791 people making it the most populous country in Africa. According to the CIA Worldfact book, the population growth rate of Nigeria was 2.54% in 2013. If the current growth rate continues, the population could reach 170million by year 2020. Rapid population growth leads to rapid growth of labor, increase in supply of jobs which the economy is not able to absorb.Bernice supports that excessive supply of laboris associated with the rate of growth of the population in that size and growth rate of labor force depends on the size and growth rate of the population (24). He added that both have been growing too rapidly in developing countries, faster than employment expansionresulting in growing unemployment. Nestle was of the opinion that in the situation of limited labor demand, the acceleration in the increase of labor force has led to increased unemployment problem in Nigeria and will continue to do so in the future unless remedial measures are taken (15). Neglect of the agricultural sector. Job seekers who prefer working in white-collar jobs in the urban areas, which has led to increase in unemployment, have abandoned gainful employment in the rural areas. If more people were to venture into agriculture, then more jobs would be created (Goldberg 657).Agriculture has been left to mainly old people who lack the energy and technology to use in the production leading to mass underutilization of agricultural lands. Inadequate schools for vocational training and preference for capital intensive methods other than labour intensive methods has contributed to unemployment.The formal education in Nigeria emphasizes more on theory than on practical work. The students in tertiary and universities are mainly taught on theory works that have inadequate skills. Further, there is less emphasis on entrepreneurial skills that would have otherwise made job creators other than job seekers. There has also been a rapid expansion of the education system that has lead to the increase in the supply of labour exceeding the available employment opportunities (Fauzia, 58)).There has also been a shortage of complimentary factors of production such as capital and materials. This is because of the country having many imports other than locally manufactures products. Lack of stable and sustainable power supply- Nigeria has been faced with a problem of energy and many businesses are forced to use generators to power their factories because of unsteady electricity. The generators are expensive and have a high maintenance cost leading to increase in the cost of unit cost of production. This has the effect of increasing the cost of doing business, which leads to increased prices making their products uncompetitive. This is further made worse by the high taxation that is levied on businesses leading to un-conducive environment for business. Corruption.-Corruption in Nigeria has robbed of the country of massive funds, which would have otherwise been used in the creation of employment. Funds meant for development projects have been diverted to personal accounts. Parastatals and other government agencies have been mismanaged and funds embezzled leading to collapse depriving the country employment in the government businesses and revenues (Bernice 25). The oils have not been prudently management leading to loss of high amounts of revenue that would have been used to create a stable economy. Corruption has also contributed to the poverty and hunger among the citizens. Effects of unemployment Inequality in income- High unemployment leads to high disparities in incomes. In Nigeria, 65% of the wealth is owned by only 20% of the population. This is because creation of wealth is in the hands of only a few people leading to most people leaving in poverty. This poverty and unemployment has resulted to people turning to crime and social evils such as prostitutions. Rise in insecurity. Unemployment has resulted in increased levels in insecurities and in emergence of such terror groups such as Boko Haram which has lead to reduced level of doing business and foreign direct investment. Insecurity has resulted in slower economic growth and even closure of schools. Insecurity has also affected the tourism sector, which brings in high foreign exchange to Nigeria. Reduction in quality of life- Unemployment leads to decline of quality of life as a result of low income, insecurity and rise in conflicts. It could also leads to decline in housing, nutrition, education, healthcare resulting in reduced lifespan. The GDP of the country will also reduce because of reduce quality of life. Possible solution of unemployment Controlled population growth- The government and other stakeholders should encourage people to take part in family planning in order to avoid rapid increase in population. This has the effect of reducing the number of job seekers in the economy, which will in turn lead to a better quality of life for the citizens. The limited resources will not be constraints and the family will take care of themselves instead of having to rely on the government. Providing incentives in rural areas-Incentives for business in rural areas should be encouraged in order to curb rural urban migration. This will include such incentives as tax holidays, which have an effect on more business setting in the rural areas. This will encourage urban rural migration, which has an effect on the improvement of infrastructure and social amenities in rural areas. This will also reduce the pressure on resources in urban areas such as social amenities. Improvement of infrastructure- Infrastructure includes electricity, railway, roads and effective communication. Infrastructure has an effect on improving trade by reducing the cost of doing business through reduced transport costs and time taken in movement. Infrastructure also has the potential of opening virgin areas and availing new opportunities not available before. Incorporating both theory and skills- Education should not only be based on theory but also skills. Practical skills help the individual to adapt to work given and also improve knowledge on the ways of doing. Entrepreneurial skills should also be included to impart learners on ways and skills to open and run business. This will enable the learners to be job creators not just job seekers. Inflation Inflation is a persistent and appreciable rise in the general level of prices (Nestle 21). For a rise in the general price level to be considered inflation, it has to be constant, steady, and sustained. The rise in the price should affect most of the commodities and should be for a significant duration of time. In an inflationary economy, it is difficult for the national currency to act as medium of exchange and a store of value without having an adverse effect on income distribution, output and employment (CBN 1984). Inflation is characterized by a fall in the value of the country’s currency and a rise in her exchange rate with other currencies. Causes of inflation in Nigeria Inflation in Nigeria has been caused by demand exceeding supply. This is in the form of depreciation of the exchange rate, reduction in direct or indirect taxation and rapid growth in money supply. It results from increase in money supply, increased government and private expenditure, population increase and decrease in the supply of goods. It could also result from cost post inflation. This inflation results from increase in production cost, increase in price of finished goods, and increase in wages. It could also be caused by higher taxes on imported goods. Effects of inflation Inflation increases the prices of goods and services in a country hence making it difficult for poor people in the country to purchase their basic needs. As a result the death rates in such a country increase due to lack of enough food and inability to access it. Inflation in most cases decreases the purchasing power of consumers. This affects the business organization in such countries since the demand for the products and services is very low resulting to closure of some businesses especially those that were in the growth stage.As inflation in being experienced in Nigeria, the government of the country orders the central bank to increase interest rates in order to minimize spending. This in one way or another affects the growth of business organizations in such countries due to lack of sufficient capital to carry out their business operation hence affecting the economic growth of the country. Evaluate the advantages and the disadvantages of the current fiscal policy and monetary policy being implemented in the chosen country. David defines fiscal policy as the use of public finance or expenditure, taxes, borrowing and financial administration to further economic objectives (210). Fiscal policy is concerned withactions that the Government of a country takes in raising money and spending with an aim of influencing macro-economic variables,such as improving national income, employment level, aggregate demand, economic growth and controlling inflation. It also aims at protecting infant industries from foreign competition, improve balance of trade, building infrastructure, providing education, security, agriculture paying national debt, and control consumption of certain goods. The tools of fiscal policy include borrowing, taxation, and government expenditure. Taxation involves ways of raising revenue for the government while expenditure refers to the use of the money. Oil revenues mainly dominate tax in Nigeria and expenditure mainly involves two levels of government, the federal government and 36 states. Althoughfiscal policies have advantages, they also havedisadvantages that include providing unfriendly environment for business, reduce consumer purchasing power, deterrent to work, increasing unemployment, deterrent to saving and investment, increased inflation. Taxation provides unfriendly environment because taxes increases the cost of doing business through higher production costs making products uncompetitive. Taxation has an impact on the consumer purchasing power because it reduces the amount held by a consumer. The consumer can therefore purchase fewergoods with his or her after-tax income. Taxation also deters people from work because the more they work the higher they are taxed. Taxes also have an effect on inflation because it increases the prices of goods leading to steady rise in prices. Monetary policy-Nestledefines monitory policy as a policy employing the central bank’s control of the money supply as an instrument for achieving certain given objectives of economic policies (22). Monetary policy seeks to ensure that supply of money is sufficient to maintain desirable and stable economic growth and control inflation. Monetary policy will involve Central bank which uses tools such as interest rates control, credit control, lending to commercial banks, control of reserve requirement, security requirement. Secondary reserve requirement, cash reserve requirement, and open market. The advantages of use of the tools include low inflation and higher economic growth. Monetary policy lowers inflation because the supply of money is kept under control. This in turn keeps prices stable. Monetary policy also lead to rise in economic growth with reduced rates of inflation people have confidence in their currency and prices are steady. This has possibility of attracting foreign direct investment and also raising investment in the country. However, monetary policy also has disadvantages such as conflicting goals and time taking. Conflicting goals result from when the central bank in the federal government disagrees with the central banks in the states. Monetary policies take time to be implemented and start showing impact in the economy. Effectiveness of various economic growth reforms carried out in the past years The government of Nigeria has taken big steps to develop and successful implement a strategic framework for federal budget, guide service ministries and open the federal procurement to competition. DAI was requested to build on the successful implementation of the strategy by deepening the budget reform, expanding the budget to selected states, preparation of major institutions in government and the civil society in order to play a significant role and support policy reforms to make it easier for player in the private sector to respond to new challenges and opportunities. The main aim of the policy reform is to improve the policy environment and address main impediments to economic growth in the country (Henry, 34). The government of Nigeria designed the reforms in a way that it could be able to meet its National Economic Empowerment and Development strategy needs that are creation of wealth, creation of employment, reduction of poverty, and value orientation. As the government of Nigeria has been focusing on ensuring that budget to various states is being expanded, it has become a little bit easier for such states to develop appropriately.This in one way or another has promoted equal distribution of resources in all the states of Nigeria hence promoting economic development in all of them. In order to source enough revenues to be invested in these states, the Nigerian authorities havehighly improved its oil and gas exploration industry.The government has supported the oil and gas exploration companies within the country by supporting them acquire the modern technology that will improve the effectiveness and efficiency of the production processes of those companies. The government of Nigeria is also sending its delegates to various countries that are producing quality oil and gas products such as the Middle East countries for them to learn how to improve production methods exercised in Nigeria and educate the local producers of oil and gas products in the country. This has been very instrumental in improvement of the quality of the oil and gas products being produced in Nigeria hence facilitating increased demand of these products (Fauzia, 58). Due to increased demand of its oil and gas products, Nigeria has been generating exceptional revenue in the past years which are continuously increasing hence availing sufficient funds to be allocated to its different states to promote economic development. Effects of balance of payments on exchange rates and ways in which Nigeria manage its foreign debts A Balance of payments isa statement which summarizes economy’s transactions with different countries of the world.Itencompasses transaction between residents of a country and nonresidents involving services, goods and income; liabilities and financial claims on the rest of the world (Bernice 30). When Nigeria experiences a deficit in its current account, the value of its naira falls. This is as a result of high value of imports to the country than the value of exports that the country sells to foreigners. This difference increases the values of a foreigner’s currency than that of Nigeria. When the current account is a surplus, the value of the naira is higher than those of foreigners’ currencies.This is due to the fact that at that particular period, the value of imports to Nigeria is lower than the value of exports sold to foreigners. The government of Nigeria has highly invested in its oil and gas exploration industry. The country is continually making exceptional revenues from this industry that gives it a good financial muscle to clear some of its debts.The country has also invested highly in its agricultural products. These products are then exported to different countries globally that enables the country acquire foreign income. Part of the income acquired is used to improve the economic development within the country and some is used to clear debts that the country owes to foreigners. The government of Nigeria also clears debts through non-financial means with some countries by giving them priorities when it comes to the sale of its oil and gas products and the agricultural ones as well as when welcoming investors to the country. Conclusion High level of unemployment within a country affects the economic development of a country in so many ways.It increases crime rates within the country hence scaring investors from opening businesses in such a country.Inflation also when experienced in a country cause severe damage to the country’s economic development. It decreases the purchasing power in that country and availability of capital hence making it difficult for business organizations in such a country to blossom.The governments of different countries should therefore maximize their abilities to ensure that inflation and unemployment level are minimal within the respective countries in order to promote their economic development. They should also ensure that there is no deficit in their current accounts for their currencies to be of good value in international trade. Works Cited Nestle, M. "Economic development in Nigeria." The New African Journal of Dvelopment. 4 (2002), 30:12-24. Print. Bernice, S. "Economic performace of oil rich countries in Africa." Management journal. 3.2 (1997), 21: 23-34. print David, P. “Factors affecting ecomomic development of African countries”. Journal of research. 4 (2008),34: 199-202. Print. Goldburg, R.J. Role of the government in Nigeria’ economic development." Journal of management 6.3 (1992), 13: 647-652. Print. Henry, p. "The effects of unemployment and inflation in a country." The New England Journal of Research.4.3 (2002), 23: 34-56. Print. Fauzia, S. "Effects of nflation in African countries." The journal fo competitive advantage.2.4 (1997), 23: 56-67 Read More