Consumption smoothing and vulnerability in Russia

Abstract

Applying bootstrapped quantile regression to the Russian Longitudinal MonitoringSurvey (RLMS) data, we examine the channels through which individuals experience and seek to cope with changes in consumption. We find that married individuals living in small households, with educated heads in urban areas are better equipped to smooth consumption. Investigating the impact of idiosyncratic shocks, we find that the labour market is an important transmission mechanism allowing households to smooth their consumption but also exposing them to risk, mainly through job loss. Outside of pension payments the formal social safety net does not facilitate consumption smoothing, thus heightening the importance of informal coping institutions. It transpires that both support from relatives/friends and home production act as important insurance mechanisms for the most vulnerable. In contrast with previous findings, it would seem that regardless of its historical, political and social roots, the garden plots and dachas, often romanticized in Russian literature do provide a means by which urban Russians are able to cope with economic fluctuations. We finish by stressing the important policy lessons for Russia's developing market economy.

Recomposition and levelling of consumption expenditures across four economic shocks in Russia, 1994–2014

“…Second, the existence of the levelling effect depends on the capacity of the members of low‐income households to keep their jobs. Individuals who lose their jobs during economic shocks may face the severest consumption shocks (Gerry & Li, ). It is argued that economic shocks tend to raise inequality more in deregulated labour markets with higher rates of unemployment and less in highly regulated labour markets with lower rates of unemployment (Galbraith & Jiaqing, ).…”

Vulnerability to poverty: an empirical comparison of alternative measures

“…VER is in fact an ex post assessment of the extent to which a negative income shock caused a welfare loss in terms of consumption. This third approach is based on the consumption smoothing and risk sharing literature, where the degree of vulnerability is defined by the extent to which the growth rate of household consumption covaries with the household income growth rate (Gerry andLi 2010, Skoufias and. VER aims to understand if households are able to spread the effects of income shocks through formal or informal insurance strategies, with the following interpretation in terms of vulnerability: if consumption and income are correlated, then the households use not so effective risk management instruments, increasing their vulnerability to negative income shocks.…”

Concepts and measurement of vulnerability to poverty and other issues: a review of literature

“…In the Russian Federation, Gerry and Li (2010) apply quantile regression to a model similar to Glewwe and Hall (1998). They find that a well-functioning labor market is highly valuable, because individuals entering unemployment faced heightened levels of vulnerability among those experiencing the severest consumption shocks whereas households containing individuals entering the labor market are well equipped to smooth consumption.…”