1.0 Introduction
1.1 Background of Study
Fuel pricing in Nigeria has historically played a pivotal role in shaping the socio-economic landscape of the country. As an oil-rich nation, Nigeria is both a major crude oil producer and an importer of refined petroleum products (Adenikinju, 2009). Over the years, changes in fuel prices have been known to affect various economic sectors. In particular, the impact on the labor market is profound, especially in a developing economy like Nigeria where fuel is a critical input for transportation, power generation, and industrial production. An increase in fuel prices tends to raise the cost of goods and services, resulting in inflationary pressures. This escalation affects business operations, especially for micro, small, and medium-sized enterprises (MSMEs), many of which are unable to absorb the increased costs and are forced to reduce their workforce or cease operations altogether (Okonkwo & Obi, 2016).
According to the National Bureau of Statistics (2021), Nigeria’s unemployment rate has consistently risen over the past decade, particularly among the youth population. While several factors contribute to this trend, the role of fuel price volatility is increasingly gaining attention among policymakers and researchers. Fuel price hikes can reduce consumers’ disposable income, lower aggregate demand, and reduce production levels in the real sector of the economy all of which lead to job losses or slower job creation (Umeh & Obafemi, 2015). Nigeria’s informal sector, which constitutes a large percentage of total employment, is highly vulnerable to changes in fuel prices. From transportation to food vending and petty trading, many informal sector activities are fuel-dependent. As prices rise, the cost of doing business increases, profit margins shrink, and employment stability becomes threatened (Olaniyan & Bankole, 2020).
Fuel price according to Adenikinju (2009) refers to the cost at which fuel typically petrol, diesel, or kerosene is sold to consumers. This price is influenced by several factors including international crude oil prices, government subsidies, taxation policies, and local distribution costs (Adenikinju, 2009). In a developing country like Nigeria, where the economy is significantly reliant on oil both as a revenue generator and a major energy source, fluctuations in fuel prices can have far-reaching effects on various sectors, including employment. Unemployment is defined as the condition in which individuals who are capable of working, are actively seeking work, but are unable to find any (International Labour Organization, 2022). It is a major indicator of a nation’s economic health. In Nigeria, the unemployment rate has remained persistently high, and recent economic challenges have further worsened the situation. Rising fuel prices are believed to be a contributing factor, particularly because they affect production costs, transportation expenses, and the general cost of living.
The Nigerian economy is heavily dependent on petroleum both as a source of revenue and as the primary energy source. According to the Nigerian National Petroleum Corporation (NNPC), petroleum contributes over 80% of Nigeria’s export earnings and nearly 60% of government revenue (NNPC, 2021). Fuel price hikes often lead to increased production costs in industries that rely heavily on fuel for operations, logistics, and transportation. These cost pressures can result in downsizing, reduced recruitment, and, in some cases, complete shutdown of small and medium-scale enterprises (SMEs) that cannot absorb the added cost (Oyeyemi & Adebayo, 2019).
The removal of fuel subsidies in recent years has also added a new layer of complexity. While subsidy removal is aimed at reducing government expenditure and promoting efficiency, it often leads to sharp increases in pump prices, sparking inflation and public discontent. In such a context, understanding how fuel price fluctuations influence unemployment becomes crucial for designing effective economic and labor policies. This study, therefore, seeks to explore the linkage between fuel price dynamics and unemployment trends in Nigeria, with a view to providing evidence-based recommendations for sustainable development.
1.2 Statement of Problems
Investigation revealed that fuel price fluctuations in Nigeria are a persistent challenge that is deeply intertwined with the country’s economic wellbeing and social stability. The continuous rise in fuel prices is instead a critical issue that affects not only the cost of living but also the employment situation across various sectors. In Nigeria, where a large percentage of the population depends on informal and small-scale businesses for livelihood, increases in fuel costs are instead a direct blow to business operations (Okonkwo & Obi, 2016). The problem is more pronounced due to Nigeria’s reliance on fuel subsidies which have been inconsistently applied or removed, leading to sudden and often unpredictable price increases (Umeh & Obafemi, 2015).
Furthermore, the rising unemployment rate in Nigeria is instead a significant social problem that exacerbates poverty, crime rates, and social unrest. Many young people, who form the largest share of the unemployed population, are instead left vulnerable due to lack of job opportunities partly driven by rising operational costs linked to fuel price increases (National Bureau of Statistics, 2021). It is against the backdrop that this study seeks to address these problems by exploring this linkage, the study hopes to provide insights that will guide policymakers in crafting strategies to mitigate the adverse effects of fuel price changes on employment and economic stability.
1.3 Aim and Objectives of Study
The aim of this research is to examine the impact of fuel price fluctuations on the unemployment rate in Nigeria and provide recommendations to mitigate negative effects. The specific objectives of the study are as follows:
- To evaluate the relationship between fuel price increases and unemployment rates in urban and rural areas.
- To assess how fuel price changes affect employment levels in different sectors of the Nigerian economy.
- To identify how fuel price adjustments influence the informal sector employment.
- To analyze the trend of fuel price changes in Nigeria over the last decade.
- To recommend policy measures that could reduce unemployment caused by fuel price volatility.
1.4 Research Questions
Based on the objectives of the study, the following research questions have been formulated:
- What has been the trend of fuel price changes in Nigeria over recent years?
- How do fluctuations in fuel prices affect employment levels across various economic sectors in Nigeria?
- What is the relationship between rising fuel prices and unemployment rates in urban and rural Nigerian areas?
- How do fuel price changes impact employment in the informal sector?
- What policy interventions can be effective in reducing unemployment caused by fuel price volatility?
1.5 Significance of Study
The outcome of this research will inform labor unions and workers’ groups about the economic pressures linked to fuel price changes. Additionally, researchers and academics will benefit from new empirical data to support further studies.
Furthermore, the government will benefit from the study by using its findings to formulate sustainable fuel pricing and employment policies.
Finally, the general public will better appreciate the link between fuel prices and employment, promoting informed public discourse.
1.6 Scope of Study
The study is limited to examining fuel price impacts on unemployment within Lagos State and considers major sectors including transportation, manufacturing, and informal businesses. This research covers data from the last ten years, focusing on government fuel pricing policies and labor statistics.
1.7 Limitations of the Study
Several limitations were encountered during the course of this study, which may have influenced the results and conclusions.
- Time Constraints: A study of this nature needs relatively long time during which information for accurate or at least near accurate inference could be drawn. The period of the study was short, time posed as constraints to the research.
- Financial Constraints: The research would have extended the survey to other area at the empirical level, but limitation as included cost of transportation to the source of material and the cost of time setting of the already completed work.
- Lack of Cooperation: Many of the respondents are usually aggressive on issue that border cooperation among the respondents border.
- Response Bias: The study will involve surveys and interviews with cooperative managers and members. Response bias may occur if respondents provide socially desirable answers or if there is reluctance to disclose negative financial information due to privacy concerns or fear of repercussions.
1.8 Definition of Terms
Fuel Price:
The cost at which petroleum products such as petrol, diesel, or kerosene are sold to consumers. Fuel prices in Nigeria are influenced by global oil prices, government subsidies, taxation, and local distribution costs (Adenikinju, 2009).
Unemployment Rate:
The percentage of the labor force that is willing and able to work but is unable to find employment. It reflects the health of the labor market and overall economy (International Labour Organization, 2022).
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