entry to and exit from poverty in russia: evidence from longitudinal data

4th Russia-India-China Conference, New Dehli, November 20-21

Entry to and Exit from Poverty in Russia: Evidence from

Longitudinal Data

Irina Denisova

New Economic School, Moscow


Motivation• Long-term sustainability requires social stability and could be undermined by

high poverty levels.

• Poverty in Russia declined during the last five years from 29% of population in 2000 to 15% in 2006. Still more than twenty five million people have incomes that are lower than subsistence level

• The economic crisis is likely to increase poverty. The most vulnerable groups?

• Significant body of literature on poverty in Russia– literature analyzes primarily stocks of poverty – only some indirect insights about flows in and out of poverty – an understanding of how entry to poverty and exit from poverty are shaped is

lacking

• For the field: initial income distribution in transition is very condensed. The role of educational and health endowments could be convincingly highlighted (less correlation with household wealth endowment)


Literature• Poverty incidence is sizeable but poverty gap is small for

most families– Limited opportunities to smooth consumption

• Most poverty is transitory. Observable determinants of transitory and chronic poverty are the same

• The vulnerable:– Large families– Families with children (particularly single parent)– Rural households– Families with unemployed family heads or wage arrears

• The Buffers– Pensions– Education


Research questions

• What are the determinants of entry to and exit from poverty (duration of poverty and non-poverty spells)?

• Are the two processes symmetric or there are important asymmetries?

• What are the time-related properties of the flows? Are there changes brought to life by the economic growth that followed the economic decline?


Data

• Russian Longitudinal Monitoring Survey

• Waves 5 – 13 (1994 to 2004)– Nationally representative, about 5,000

households in each round– Very complete income and expenditure

information– Follows same household structure– Panel attrition is a serious issue


Attrition of Households from Round 5 (from B.F.Mills (2007))

Percent of

Number Initial

Households in Round 5 4,293

Households in Rounds 5 - 6 3,486 81






Households in Rounds 5 -12 1,288 30


Figure 1a: Annual Incidence of Poverty for Panel Sample

0

5

10

15

20

25

30

35

40

1994 1995 1996 1998 2000 2001 2002 2003

Year

% P

oo

r

Income based

Expenditure based

Figure 1b: Annual Incidence of Poor - Period Samples with National Weights

0

5

10

15

20

25

30

35

40

1994 1995 1996 1998 2000 2001 2002 2003

Year%

Po

or

Income based

Expenditure based

Comparing Panel Sample with Period Samples (Mills, 2007)


Study measures

• Absolute poverty concept

• Total household income is main measure of household economic well-being

• Region specific poverty lines– Local diets– Regional prices– Estimated household equivalence scales


Poverty rates (RLMS definition)

0

10

20

30

40

50

60

Sep

-92

Mar

-93

Sep

-93

Mar

-94

Sep

-94

Mar

-95

Sep

-95

Mar

-96

Sep

-96

Mar

-97

Sep

-97

Mar

-98

Sep

-98

Mar

-99

Sep

-99

Mar

-00

Sep

-00

Mar

-01

Sep

-01

Mar

-02

Sep

-02

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Per

cent

age

Under 50% of poverty line 50-100% of poverty line


Methodology• Survival analysis

– Eliminates estimation bias due to non-normality of time to event and right-censoring

– Allows using an unbalanced panel

• Proportional hazard model

• Cox model specification (non-parametrical baseline)• Cluster on id (to take into account multiple failures)• Try strata on settlement type and period (allows

baseline hazard to vary across the groups)

txxt 00 ,,,, ,


Methodology

• Explanatory variables (X) include

– demographic characteristics of a household; – labor market attachment of adult family members; – eligibility for public transfers; – characteristics of human capital of a household; – settlement type and economic region; – time period

• Changes in variables in X are considered


Panel statistics

Year # of hh 1994 1995 1996 1998 2000 2001 2002 2003 2004 Initial panel Frequency initial id

8323 3,973 3,781 3,750 3,831 4,006 4,528 4,668 4,718 4,715

Percent 10.46 9.96 9.88 10.09 10.55 11.93 12.29 12.43 12.42

Poverty panel Frequency initial id new id

6214 7143 2,810 2,808 2,763 2,835 2,995 3,296 3,441 3,569 3,551

Percent 10.01 10 9.84 10.1 10.67 11.74 12.26 12.72 12.65

Non-poverty panel Frequency initial id new id

6214 7143 2,810 3,188 3,063 3,044 3,017 3,285 3,424 3,548 3,494

Percent 9.73 11.04 10.61 10.54 10.45 11.38 11.86 12.29 12.1


Gaps in data record: an example

1996 1997 (unobserved) 1998 1 poor poor poor 2 poor non-poor poor 3 poor poor non-poor 4 poor non-poor non-poor 5 non-poor poor poor 6 non-poor non-poor poor 7 non-poor poor non-poor 8 non-poor non-poor non-poor

1, 3 and 5 – underestimate poverty spells 4, 6 and 8 – underestimate non-poverty spells2 and 7 - overestimate poverty and non-poverty spells


Poverty and non-poverty incidence and duration

Total number of rounds in poverty

0 1 2 3 4 5 6 7 8 9 Total Number of hh 3,388 1,451 596 332 182 118 72 45 25 5 6,214

% 54.52 23.35 9.59 5.34 2.93 1.9 1.16 0.72 0.4 0.08 100

Maximum duration of poverty spells

0 1 2 3 4 5 6 7 8 9 Total Number of hh 3,388 1,706 585 245 130 72 45 21 17 5 6,214

% 54.52 27.45 9.41 3.94 2.09 1.16 0.72 0.34 0.27 0.08 100

Total number of rounds in non-poverty

0 1 2 3 4 5 6 7 8 9 Total Number of hh 526 1,761 827 610 563 400 334 345 436 412 6,214

% 8.46 28.34 13.31 9.82 9.06 6.44 5.37 5.55 7.02 6.63 100

Maximum duration of non-poverty spells

0 1 2 3 4 5 6 7 8 9 Total Number of hh 526 1,942 938 715 628 503 303 141 106 412 6,214

% 8.46 31.25 15.09 11.51 10.11 8.09 4.88 2.27 1.71 6.63 100


Survival function of staying in poverty

.621

210.

116.

94.

34.16.

7.6. .5

0.00

0.25

0.50

0.75

1.00

0 2 4 6 8 10analysis time

Kaplan-Meier survival estimate


Survival function of staying out-of-poverty

.1531

703.

514.436.

.416 .340 233. 100. .412

0.00

0.25

0.50

0.75

1.00


Kaplan-Meier survival estimate


When in poverty When in non-poverty

Variable Mean Std. Dev. Mean Std. Dev. Mean Std. Dev.

family size, number of people 2.755 1.427 3.061 1.539 2.712 1.391 change in family size 0.015 0.271 0.031 0.310 0.009 0.258 # of kids <7 yrs in hh 0.214 0.486 0.303 0.597 0.190 0.453 # of kids 7-18 yrs in hh 0.466 0.746 0.668 0.879 0.430 0.712 HH headed by adult male 0.609 0.488 0.722 0.448 0.573 0.495 HH headed by adult female 0.135 0.342 0.165 0.371 0.122 0.328 HH headed by retired male 0.121 0.327 0.039 0.194 0.155 0.362 HH headed by retired female 0.134 0.340 0.072 0.258 0.150 0.357 HH headed by a young person 0.001 0.031 0.002 0.045 0.001 0.026 share of adults in LF 0.627 0.423 0.679 0.394 0.606 0.430 share of adults with job 0.579 0.419 0.586 0.399 0.572 0.424 share of adults unemployed BLS 0.046 0.160 0.091 0.225 0.033 0.130 share of adults in bad health 0.183 0.309 0.167 0.292 0.190 0.310 share of adults-pensioners 0.399 0.439 0.248 0.369 0.455 0.447 share of adults in public sector 0.264 0.354 0.289 0.364 0.265 0.353 share of adults with university degree 0.166 0.316 0.099 0.251 0.177 0.322 share of adults with secondary school only 0.110 0.244 0.151 0.280 0.100 0.232 maximum level of education 1.978 0.863 1.901 0.760 1.987 0.888 family involved in subsistence farming 0.142 0.349 0.111 0.314 0.166 0.372


Survival of staying in poverty, by settlement type

0.00

0.25

0.50

0.75

1.00


urban = 0 urban = 1

Kaplan-Meier survival estimates, by urban


Survival of staying in non-poverty, by settlement type

0.00

0.25

0.50

0.75

1.00


urban = 0 urban = 1

Kaplan-Meier survival estimates, by urban


Survival of staying in poverty, by period

0.00

0.25

0.50

0.75

1.00


period = 0 period = 1

Kaplan-Meier survival estimates, by period


Survival of staying in non-poverty, by period

0.00

0.25

0.50

0.75

1.00


period = 0 period = 1

Kaplan-Meier survival estimates, by period


Hazard rate from poverty Hazard rate into poverty family size, number of people in family 0.079 0.079 -0.037 -0.047 [0.020]*** [0.020]*** [0.027] [0.028]* # of kids <7 yrs in hh -0.08 -0.086 0.202 0.195 [0.039]** [0.039]** [0.049]*** [0.048]*** # of kids 7-18 yrs in hh -0.11 -0.114 0.244 0.225 [0.029]*** [0.029]*** [0.036]*** [0.036]*** HH headed by adult female -0.034 -0.028 0.048 0.097 [0.051] [0.051] [0.066] [0.065] HH headed by retired male 0.186 0.184 -0.529 -0.618 [0.088]** [0.087]** [0.107]*** [0.108]*** HH headed by retired female 0.281 0.277 -0.213 -0.241 [0.084]*** [0.084]*** [0.107]** [0.107]** share of adults in LF 0.547 0.501 0.513 0.083 [0.355] [0.359] [0.495] [0.500] share of adults with job -0.513 -0.46 -0.639 -0.19 [0.351] [0.355] [0.491] [0.496] share of adults unemployed BLS -0.671 -0.636 -0.449 -0.05 [0.360]* [0.363]* [0.507] [0.511] share of adults in public sector -0.003 -0.018 0.241 0.136 [0.056] [0.056] [0.063]*** [0.062]**


Hazard rate from poverty Hazard rate into poverty share of adults with university degree 0.257 0.261 -0.545 -0.545 [0.057]*** [0.057]*** [0.077]*** [0.078]*** share of adults with secondary school only -0.168 -0.17 0.107 0.112 [0.065]** [0.066]*** [0.074] [0.073] family involved in subsistence farming -0.115 -0.104 -0.049 -0.055 [0.058]** [0.057]* [0.057] [0.056] share of adults with bad health -0.089 -0.102 0.387 0.304 [0.060] [0.060]* [0.076]*** [0.075]*** share of adults-pensioners 0.109 0.101 -0.13 -0.23 [0.066] [0.067] [0.081] [0.081]*** 1- urban 0- rural or pgt 0.106 0.099 -0.378 -0.399 [0.034]*** [0.034]*** [0.042]*** [0.042]*** Moscow&St.Petersburg 0.095 0.114 -1.059 -0.877 [0.075] [0.076] [0.124]*** [0.123]*** decline =0 growth=1 -0.107 -1.043 [0.038]*** [0.050]*** Observations 6347 6347 20664 20664


Results

• Symmetries– Presence of children weakens hh position– Households headed by retired males and females

tend to be in a stronger position than headed by an adult man

– Adult female-headed households are indistinguishable from adult male-headed households

– High share of adults with university degree is an effective buffer against poverty: it reduces entry to poverty and increases exit from it.

– Families that live in urban areas have lower chances to get into poverty and higher chances to get out of it.


Results

• Asymmetries– larger families are doing better when getting out of poverty and

average when slipping into poverty– higher share of unemployed reduces hazard from poverty but

does not affect the rate of entry to poverty – higher share of employed in the public sector increases entry to

poverty but is insignificant for poverty exit rate– involvement in subsistence farming is a sign of lower exit rate

and has no influence on entry rate – bad health increases chances to enter poverty but does not

affect chances to escape it – economic growth lowers chances to slip into poverty but also

reduces hazards from poverty.


Conclusions and policy implications

• Find significant asymmetries between determinants of entry to and exit from poverty– A better design of policies to fight poverty should

distinguish between measures to prevent from slipping into poverty, and measures to get out of poverty for those who are poor.

– Households in poverty in the period of economic upturn are to be paid special attention to

• Confirm the role of educational and health endowments in preventing poverty

entry to and exit from poverty in russia: evidence from longitudinal data

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