Wage-price dynamics and structural unemployment in the Nigerian labor market, 1981–2022

Abstract

The recent agitation from labor unions in Nigeria for an upward review of wages as a result of hyper-inflation is a typical response in recessionary gaps and introduces new spheres of complexities in the dynamics of an already underper forming labor market. A novel feature of this research is its focus on the actual labor market rigidities (as opposed to the technological changes or skill mismatches) that cause long-run unemployment to persist in the Nigerian economy, a departure from current literature. To this end, this study attempts to eliminate cyclical and frictional noise via the application of a disaggregated labor market model within the real business cycle framework. This approach allows for a moreefficientdiagnosis of the threshold effects of wage–price interactions and the structural unemployment problem in the Nigerian labor market. Results show that the policy of upward wage adjustments in response to rising inflation rates can explain the structural unemployment levels in the Nigerian economy. Data analysis reveals that a strictly positive relationship exists between wage growth and price levels such that labor market rigidities are intensified in line with progressive wage policy regimes as far as the Nigerian economy is concerned. The study recommends a policy switch from wage increments to price controls in order to reduce the long-run unemployment rate and improve the overall dynamics of the Nigerian labor market.