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CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

Recently in Nigeria, the CBN and the Finance Minister have told Nigerians that the nation is in an economic recession, it is very important that the impact of this recession on the Nigerian populace is well understood. The causes can be well understood if the definition of an economic recession is revisited. An Economic Recession  is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real Gross Domestic Products, real income, employment, industrial production, and wholesale-retail sales.(US National Bureau of Economic Research).

Generally in economics, a recession is a negative economic growth for two consecutive quarters. It is also a business cycle contraction which results in a general slowdown in economic activity (Merriam-Webster Online Dictionary, 2008). Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise.

Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

A recession has many attributes that can occur simultaneously and includes declines in component measures of economic activity (GDP) such as consumption, investment, government spending, and net export activity. These summary measures reflect underlying drivers such as employment levels and skills, household savings rates, corporate investment decisions, interest rates, demographics, and government policies.

A researcher, Koo (2009) wrote that under ideal conditions, a country’s economy should have the household sector as net savers and the corporate sector as net borrowers, with the government budget nearly balanced and net exports near zero. When these relationships become imbalanced, recession can develop within the country or create pressure for recession in another country (Koo, 2012). Policy responses are often designed to drive the economy back towards this ideal state of balance.

A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different (Shiskin, 2004). As an informal shorthand, economists sometimes refer to different recession shapes, such as V-shaped, U-shaped, L-shaped and W-shaped recessions

Unemployment is particularly high during a recession. Many economists working within the neoclassical paradigm argue that there is a natural rate of unemployment which, when subtracted from the actual rate of unemployment, can be used to calculate the negative GDP gap during a recession. In other words, unemployment never reaches 0 percent, and thus is not a negative indicator of the health of an economy unless above the “natural rate,” in which case it corresponds directly to a loss in gross domestic product, or GDP.

The full impact of a recession on employment may not be felt for several quarters. Research in Britain shows that low-skilled, low-educated workers and the young are most vulnerable to unemployment in a downturn. After recessions in Britain in the 1980s and 1990s, it took five years for unemployment to fall back to its original levels (Vaitilingam, 2009). Many companies often expect employment discrimination claims to rise during a recession (Rampell, 2011).

1.2       STATEMENT OF THE PROBLEM

This study is examining the impact of economic recession on the Nigerian populace. Productivity tends to fall in the early stages of a recession, then rises again as weaker firms close. The variation in profitability between firms rises sharply. Recessions have also provided opportunities for anti-competitive mergers, with a negative impact on the wider economy.

The living standards of people dependent on wages and salaries are not more affected by recessions than those who rely on fixed incomes or welfare benefits. The loss of a job is known to have a negative impact on the stability of families, and individuals’ health and well-being. Fixed income benefits receive small cuts which make it tougher to survive.

1.3       OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1. To examine the impact of economic recession on the Nigerian populace.
2. To examine the relationship between economic recession and unemployment in Nigeria.
3. To examine the relationship between economic recession and standard of living in Nigeria.

1.4       RESEARCH QUESTIONS

1. What is the impact of economic recession on the Nigerian populace?
2. What is the relationship between economic recession and unemployment in Nigeria?
3. What is the relationship between economic recession and standard of living in Nigeria?

1.5       HYPOTHESIS

HO: The economic recession does not have significant impact on Nigerian populace

HA: The economic recession does have significant impact on Nigerian populace

1.6       SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1. This study will educate the government of Nigeria and the general public on the impact of this ongoing economic recession of the Nigerian populace.
2. This research will be a contribution to the body of literature in the area of the impact of economic recession on the Nigerian populace, thereby constituting the empirical literature for future research in the subject area.

1.7       SCOPE/LIMITATIONS OF THE STUDY

This study is limited to the impact of economic recession on the residents of Edo State of Nigeria.