It is a widely accepted view in economics that the growth rate of the GDP of an economy increases employment and reduces unemployment. This theoretical proposition relating output and unemployment is called “Okun’s Law”. This relation is among the most famous in macroeconomics theory and has been found to be hold for several countries and regions mainly, in developed countries (Lee, 2000; Farsio and Quade, et al, 2009). Unemployment with its economic and social implications is one of the most pressing problems facing Nigerian policy makers, high rates of unemployment signal a deficiency in the labour market, deepening poverty incidence and spread indecent standards of living (World Bank, 1994).
It has always been part of the culture and tradition of employment in the private sector for employers to resort to squeezing their employees when their profit margin begins to narrow; they employ a few measures: increase work hours for the same pay, cut pay and benefits, increase targets and output, reduce the number of employees. These measures are applied just to maintain profit margins, even in times of economic boom. In times of economic crisis, therefore, it is to be expected that the burden on workers will increase in magnitude (Ipaye, 1998).
Indeed throughout history, economic down-turns have always resulted in hardships and reduced quality of life for workers, employees, low-income earners and vulnerable members of the society. The ‘Great Depression’ of the 1930s (said to have originated on October 29, 1930, following the crash of the American Stock exchange) resulted in dramatic socio-economic consequences not only in the United States, but worldwide, there was a sharp drop in personal income, tax revenue, prices and profits, international trade plunged by two-thirds, unemployment rose to 25% in the United States and up to 35% in some other countries; construction work was virtually grounded in many countries, rural areas and farming experienced tough times as the prices of crops dropped by as much as 60% (Wikipedia); businesses collapsed and many people committed suicide. The issue of unemployment is clearly one of the most important problems of the world, so it covers an important area in macroeconomic and econometric research. Macroeconomists have tried to explain the hysteresis in unemployment, the cause of unemployment and the relationship between unemployment and some macroeconomic variables such as inflation, growth etc. These subjects play a very important role in macroeconomic building and provide some significant knowledge for macroeconomic policy; furthermore the knowledge of the relationship between unemployment and economic growth is regarded as a benchmark for policy makers to measure the cost of higher unemployment (Adelodun, 2006).
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