Is Government Wages Productive? Evidence from Nigeria’s Education Sector

Abstract

This research used annual data from 1970 to 2019 to investigate the impact of wages on Nigerian productivity growth, employing one of the most advanced econometric approaches to evaluate experimentally the hypotheses developed. In this regard, utilizing a systems simultaneous equation, cointegration analysis was introduced to capture long- and short-run connections among variables. This is because Vector Autoregressive (VAR) considers all variables to be endogenous. The simultaneous equation was simulated using this technique and VAR through the Vector Error Correction Mechanism (VECM) procedure. Ex-ante forecasting using impulse response and variance decomposition simulations, as well as ex-post forecasting to evaluate the time under research, were also used in the study. The study also looked at causality correlations between series using the VECM Granger causality technique, which is used in F-/Wald test simulation to determine short-run causation between variables. The above-mentioned simultaneous equation is then approximated using Ordinary Least Squares (OLS). Wages have a positive and significant association with education growth, whereas government policy has a negative relationship with education growth in its four lags, according to empirical findings. Wages affect education growth, according to the VECM Granger causality result. A closer examination of the impulse response function reveals that wages will have a detrimental short- and long-term impact on educational growth. Furthermore, studies show that wages have a significant role in contributing to educational advancement across all times. This is because, according to variance decomposition innovations, salaries will generate 51.4 percent changes in long-term productivity growth. Based on the findings, this study recommends that the government provide suitable welfare packages to make teachers proud and glad of their profession, because welfare outcomes are crucial for employee productivity, and a lack of reward is a potential cause of worker productivity decline.

Keywords: recurrent expenditure; education growth; wages; VECM

Article Review Status: Published

Pages: 36-62 (Download PDF)

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