Payroll Paradox: Using Labour Market Fluctuation in Dynamic Stochastic General Equilibrium (DSGE) Modeling in Nigeria

The application of DSGE models in economic research within the labour market in Nigeria call for concern and further need exploration. This study therefore examined labour market fluctuations in Nigeria from 2008 to 2022 using a DSGE model to analyze the payroll paradox. It also assesses how different economic shocks affect labour market outcomes. The methodology of the study is focused on secondary time-series data from the Central Bank of Nigeria’s statistical bulletin and the World Development Indicators were used covering 2008 to 2022. The analysis employs a Vector Autoregressive (VAR) model. The study conclude that economic shocks adversely affect labour market outcomes, worsening the economic outlook by prompting firms to cut jobs or reduce working hours. It is recommended that governments should implement labour market reforms that enhance wage flexibility