Income Shock and Coping Strategies of Government Workers in Southwest Nigeria: Evidence from the Survey Data

Abstract Consumers’ response to income shock have been a source of concern over the years. Unexpected negative income shock, such as nonpayment of salaries, or salary reduction may cause an individual to react differently. Coping may be easy if an individual is well-prepared and has fully insured coping strategies prior to the income shock, hence, a negative income loss would have less impact. Otherwise, an income shock could be deleterious and leave an individual vulnerable. Therefore, ability to cope during negative income shock is determined by consumers’ preparedness as well as the effectiveness and appropriateness of available coping strategies. This study, therefore, examines the coping mechanisms of government employees in southwest Nigeria during the unexpected nonpayment of salary between 2015 and 2018. Both quantitative and qualitative methods using a structured questionnaire and FDGs are employed. The data is analyzed using descriptive statistics and OLS methods. The findings suggest that durable and service goods are substituted for food consumption, while the impact of coping strategies varies across the states. Empirical results from the OLS show that workers use personal savings and credit-purchases to smooth-out consumption, borrow and reallocate resources from durables and service for food consumption. Education, spouse occupation and age also have a positive impact on consumption. Evaluation of the coping strategies indicates that they are insufficient to satisfy the needs of the workers during the shock. The study, therefore, recommends that governments should provide a flexible working environment, formulate a policy that will allow workers to diversify into businesses, provide business loans and encourage mandatory saving for uncertainty.