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Labour-Entrepreneurship Substitution
Mechanism: Determining Growth, Employment
and Wage in Nigeria
Chimaobi Valentine Okolo, Nicholas Attamah (Ph.D)
Abstract Finding a recipe that unlocks rapid growth and worked hard to forestall such circumstances through the
job creation should be the priority of emerging economies. formulation of theories tailored to suit their economies.
Several theories of growth, employment and wage Unfortunately, this is not the case in Nigeria. The Nigerian
determination were efficient for certain economies at economy has witnessed several recessions (SAP induced
different periods, but not for other emerging economies like recession in 1986, Global economic meltdown in 2008/2009,
Nigeria. This study presents the Labour-Entrepreneurship and the current recession of the Muhamadu Buhari led
Substitution mechanism as an idealistic model of growth, Administration), yet its policy makers have not carefully
employment and wage determination. It is uniquely designed articulated steps to model a pathway to sustained economic
to accumulate capital, substitute labour for growth and development, and where smart policies, such as
entrepreneurship as prospective supply of labour grows NEEDS were developed, successive governments
beyond its initial level, boost employment and output via discontinue those policies for their selfish plans. On the
new investments. Error correction mechanism of contrary, according to BGL Research and Intelligence
Autoregressive least square technique was used to measure economic note (2011), when David Cameron admitted that
the influence of labour-entrepreneurship substitution rate on the UK unemployment rate is disappointingly high, he
the new investment, and the t-statistics, adopting indicated that his government desires to see faster growth in
Benferrons multiple comparison adjusted probabilities was the economy. He maintained a certain level of continuity of
further used to measure the significance of the new his predecessors policies. Although he took it for granted
investment in determining gross domestic product in that when growth improves jobs are created, specific
Nigeria. The labour-entrepreneurship substitution rate theories and policies should focus on output and
showed significant and positive impact on the new employment generation. Similarly, leaders in developed and
investment as the new investment also showed significant emerging economies have their eyes on the GDP growth
and positive impact on economic growth in Nigeria. figure as the leading indicator to decline in poverty
Emerging and developed countries should develop the incidence through reduced unemployment, increased
labour-entrepreneurship substitution as this will increase household income and reduced inequality (BGL Research
investment and output while creating full employment in the and Intelligence, 2011).
country. Despite the impressive economic growth over the last 10
KeywordsEmployment, entrepreneurship, growth, years in Nigeria, unemployment and the incidence of
labour, substitution, wage. poverty has worsened since the year 2004 (BGL Research
and Intelligence, 2011). Nigerian economic statistics reveal
I. INTRODUCTION a puzzling contrast between rapid economic growth and
Economic meltdown is usually characterized by decline in quite minimal welfare improvements for much of the
output, employment, standard of living and a rise in poverty population (World Bank, 2013). According to the bank,
level and hunger. This was evidenced in the great depression annual growth rates that average over 7% in official data
that followed the World War II, the global economic during the last decade place Nigeria among the fastest
meltdown of 2008/2009 etc. Smart policy makers such as growing economies in the world, while poverty reduction
Lord Meynard Keynes, Rev. Thomas Malthus and others and job creation have not kept pace with population growth,
Fig. 1.
Fig. 1 shows wage determination and mobility of labour in from real investments (respectively derived from labour-
example A & B. Wage is determined by the interplay of entrepreneurship substitution). This is shown below;
labour demand and supply. Notice that an outward shift in LEs = rYL-E + IYL-E (2.9)
labour supply (S1) in example B caused wage to decline from Therefore, unemployment tends to zero if the following
initial equilibrium (e) to the new equilibrium (e 1). However, conditions are satisfied;
labour supply is less or equal to labour demand. His is U 0 = g () + I () + LEs () + iG () + A () + c ()
achieved by the labour-entrepreneurship substitution (2.8.1)
mechanism. This decline in wage due to an outward shift in or
labour supply may cause workers in sector (B) to desire to U 0 = g () + I () + LEs () + iG () + A () + c ()
move to sector (A), with higher wage (w1). Nevertheless, (2.8.2)
they remain in their current employment until the Furthermore, wage is determined in the model below,
government institution matches them with suitable job considering the assumption;
vacancy in the sector (A). Secondly, given that jobs require w = f [g, I, LEs, iG, A) (2.10)
specialization, requires training, which takes time, and the The mechanism therefore is;
fact that workers would have to start at a lower level w () = g () + I () + LEs () + iG () + A ()
compared to his/her current position, discourages perfect (2.10.1)
mobility of labour or
Furthermore an outward shift in demand in sectors A or B w () = g () + I () + LEs () + iG () + A ()
caused a shortfall in supply and a rise in wage level (w1). (2.10.2)
This was complemented by technology advancement until LEs + iG represent new investments. Population growth (g)
labour supply rose to (e1) in sector A and (e2) in sector B. represents supply of labour; while investment level (I)
Note that the rate of technology substitution for labour is represents labour demand.
influenced by government as priority is given to labour over III. METHODOLOGY
technology in the mechanism. This is also explained in the Ex-post facto research design was used to measure the
model below; impact of labour-entrepreneurship substitution rate on
E = f (g, I, LEs, iG, A, c) (2.8) investment (boosted by the substitution rate) in Nigeria [i.e.
Employment in this mechanism is derived from population the investment was derived as a function of interest rate and
growth (g), Investment (I), labour-entrepreneurship substitution rate]. Error correction mechanism of an
substitution (LEs), government compensation for incremental Autoregressive least square technique was used to measure
change in credit rate (iG), technological advancement (A), the influence of labour-entrepreneurship substitution rate on
and credit from bank (c). Labour-Entrepreneurship the new investment. The new investment value (IL-E.S)
substitution is further derived from interest earnings derived was tested for its determinant of economic growth in Nigeria
from financial investments and investment income derived using the t-statistics, adopting Benferrons multiple
V. CONCLUSION
This study tries to answer certain questions of output,
employment and wage determination is a mixed economy
such as Nigeria. Although idealistic, its assumptions are
attainable and can be adopted to solve the problem of low
output and employment. The central theme of the theory is
the Labour-Entrepreneurship substitution mechanism.
Specifically, the theory developed the capital accumulation
model, short-run growth model, and wage and
unemployment adjustment mechanisms. The theory utilized
some form of gratuity payment as part of the capital
accumulation model. The study is crucial in boosting output
and employment in developing and developed nations as well
as aid developing countries such as Nigeria to recover from
recession and boom again. There is need for policy
adjustments in order to implement the mechanism.
Given the findings, the study recommends that developing
and developed countries build the labour-entrepreneurship
substitution mechanism in their growth model as this will
increase output as well as create employment that sufficiently
absolve the unemployed in the country.
REFERENCES
[1] BGL Research and Intelligence (2011), Economic Note:
The Nigerias Paradox of Growth amidst High Poverty
Incidence. Retrieved from: www.bglgroupng.com on 5th
September, 2016.
[2] Federal Ministry of Employment, Labour and
Productivity (2003), National Employment Policy.
Retrieved from: www.google.com/national_-
employment_policy.pdf on 5th September, 2016.
[3] World Bank (2013), Nigeria Economic Report, The
World Bank, No. 1, May, 2013, 77684.