Investigating the implications of Unemployment and Inflation for Income Inequality in Nigeria (Published)
In developing countries, Nigeria inclusive, among the macroeconomic goals pursued by the government to ensure the well-being of the residents include attainment of full employment, price stability and equitable distribution of income. Available statistics in Nigeria reveal that income inequality level, unemployment and inflation rates have been increasing in recent years. This study examined the effect of increase in inflation and unemployment rates on income inequality in Nigeria for the period (1981-2023) using Autoregressive Distributed lag (ARDL) Bound Test Approach. The findings of the study show that both inflation and unemployment has significant positive relationship with income inequality in Nigeria. This implies that increase in inflation rate worsen income inequality problem in the country. It also indicates that increase in unemployment rate hikes income inequality level in the country. The interplay between unemployment, inflation and income inequality is a complex one in that if policymakers focus solely on maintaining low inflation, as directed by traditional Phillips curve it might inadvertently increase income inequality through high unemployment rate, and a policy that prioritizes on reducing unemployment level might hike inequality through high inflation rate. Hence, there is need for the government to adopt more adequate tools to fight inflationary pressure from different sources as well as curb unemployment. Among the recommendations include a judicious mix of monetary and fiscal strategies for achieving macroeconomic stability and inclusive economic development. Government policy should focus on increasing aggregate output in the economy through increase in productivity of the average worker and this can be achieved through lowering interest rate and provision of critical infrastructure especially electricity supply and road infrastructure to reduce cost of production and promote investment. Tax reduction is also recommended to stimulate consumption and investment spending, output and employment. Also, there should be increased government expenditure on education and health sectors as well as on social policies such as poverty alleviation and social protection.
Keywords: Income inequality, inflation rate, unemployment rate, Nigeria
Keywords: Income Inequality, Inflation Rate, Nigeria, unemployment rate