Understanding the Relationship between Unemployment and Inflation in Nigeria

This study investigated the relationship between unemployment and inflation in Nigeria from 1980-2015. The model specified unemployment as a function of inflation, money supply is a % GDP, total government expenditure % of GDP. The statistical tests used were causality test, VECM test, co integration test. Based on the above tests carried out, the study found out that: Inflation significantly impacted unemployment in Nigeria both in the long run and short run within the period under review. This implies that increase in government expenditure reduces unemployment, it can also be inferred from the result that government spending creates employment to the extent that inflation remains within the single digit limit. Based on the results, the study recommended that government should use discretionary policy that would reduce unemployment by boosting government expenditure and maintain stability in money supply by using the traditional monetary instruments (such as open market operation, discount rate and special directive) to reduce the quantity of money in circulation.