Coronanomics (27) - Impact of Government Policy and Restrictions on Households

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Friday, July 03, 2020 05:15 AM / by Proshare Content/ Header Image Credit:  EcoGraphics


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The federal government in an attempt to prevent the further spread of the virus in the country restricted movement in major cities like Lagos state, Ogun state and the Federal Capital Territory. The restrictions/lockdowns in some parts of the nation caused a shutdown in economic activities which hurt businesses, government activities and most notably households (see illustration 28).

 

Illustration 28: Main Channels for Short-term Impacts of COVID-19 on Welfare

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Some of the effects of the lockdown have been an increase in malnutrition especially amongst vulnerable households, rising prices and a reduction in purchasing power, and a rise in the jobless rate (23.1% in Q3 2018).

 

According to World Bank Aggregate shocks to economic activity can affect welfare (and well-being) at the household and individual level through the following channels:

 

Impact on labor income due to

  • The direct effect of lost earnings because of illness or the need to take care of sick household members
  • The indirect effect of shocks to earnings and employment, caused by decline in aggregate demand and supply disruptions. The impacts can take one or more of the following forms: (a) decline in quantity of work, either hours (intensive margin) or employment (extensive margin); (b) decline in wages, which is unlikely for salaried workers in the short-run but may occur over time due to furloughs or wage-cuts by some employers to avoid layoffs; (c) decline in income of self-employed, due to reduction of economic activity (sales, production) in micro and small enterprises due to fall in demand and disruptions in supply of inputs, or due to mobility restrictions, particularly for migrants engaged in seasonal agriculture.

 

Impact on non-labor income due to:

  • Decline in international (and domestic) remittances resulting from the economic impacts of the crisis in places where the migrants are employed, and potentially in private transfers as economic stress can reduce transfers between households or charitable support
  • Potential change in public transfers - e.g. increase as governments respond to mitigate the impacts of the shock or decrease as fiscal constraints force countries to choose between existing social protection and health care. 

 

Direct impact on consumption through:

  • Changes in prices and shortages of basic consumption goods and essentials (such as food and medicines), due to disruptions in the functioning of markets because of decline in trade (including import or export restrictions) or a fall in domestic production. This effect is in addition to the indirect welfare impact of any increase in the prices of production inputs, which would affect cost of production and labor income
  • Rise in out-of-pocket cost of health care for those directly affected by the pandemic, which may reduce consumption of other necessities among credit-constrained households

 

 Service disruptions with adverse impact on non-monetary dimensions of welfare:

  • Suspension of classes and feeding programs in schools, leading to impacts on student retention, learning, and nutrition 
  • Potential saturation of health system in countries with high incidence of COVID-19, leading to inadequate care for non-communicable diseases
  • Disruptions in mobility, due to quarantines and other containment measures which may drastically reduce public and private transportation services.

 

Illustration 29: COVID-19 Impact on Livelihoods and Food Security

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Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020

 

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