Unemployment and Economic Growth: Testing the Validity of Okun’s Law in Nigeria

Abstract

This study explores the dynamic relationship between unemployment and Gross Domestic Product (GDP) growth in the context of the Nigerian economy from 1991 to 2021. Guided by Okun’s Law, which posits a negative correlation between these two variables, rigorous econometric analysis was employed to investigate their empirical validity in the Nigerian context. The results of the analysis demonstrate a statistically significant and negative relationship between the unemployment rate and GDP growth. Specifically, a one-percentage-point increase in the unemployment rate is associated with a substantial decrease in GDP growth of approximately 2.5 percentage points. These findings affirm the relevance of Okun’s Law in Nigeria, highlighting the significant effect of unemployment on economic performance. The study also provides valuable insights for policymakers, offering evidence-based recommendations to guide the formulation of effective macroeconomic policies, including targeted measures to reduce unemployment and enhance economic forecasting.