Russia: Targeting and the Longer-Term Poor

Russia FY99 PA
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Poverty and Profile

Poverty in Russia presents serious challenges to the macroeconomic policy and political stability of the government. Poverty has characterized the transition years since 1991, and -- depending on the source of data used -- the trend is one of either worsening or improving only slightly.

This study examines poverty in Russia during 1994-96, relying primarily on the Russian Longitudinal Monitoring Survey (RLMS) data set -- the World Bank version of a data set created and assembled by the University of North Carolina Chapel Hill, and the Institute of Sociology in Moscow-- although other sources, primarily official data, are also used.
This study is particularly important because in addition to cross-sectional data used for the 1992-94 World Bank study, this study uses panel data tracking households in three years (1994, 1995, and 1996) -- data that are now publicly available. The existence of panel data makes it possible to explore the dynamics of poverty; in particular, these data allow exploration of whether a hard-core group of households has emerged that became poor at the beginning of the transition and then stayed poor throughout 1996.

The RLMS data set demonstrates clearly the emergence of the longer-term poor; in each year of the panel 13 percent of the households surveyed -- constituting 17 percent of the population -- were poor. For the purpose of this study, members of these households are termed "longer-term poor" since the panel lasted just three years This study examines the correlates for longer-term poverty and attempts to associate factors with poverty transitions -- either rising out of poverty or falling into poverty.

Poverty levels as captured in the RLMS are much higher than official statistics. The main reason is the 1994 change in how official statistics are calculated; since 1994 raw income distributions from family budget surveys have been "corrected" to account for the presence of consumer durables in the family (Rimashevskaya and Yakovleva 1998, p. 192). This "correction" has caused a decline in the official poverty headcount from around 30-33 percent in the early 1990s to 20 percent in the late 1990s.

Like the RLMS, several Russian academic sources also found that poverty did not decline. VTsIOM, a prominent public opinion polling organization, has rotated a module on poverty in its general opinion surveys at least twice (Kovaleva and Zubova 1997 and VTsIOM bulletin, various issues, 1995-97), and found no appreciable decline in poverty rates. The Institute of Socio-Economic Studies of the Population (ISEPN) has studied poverty for more than 20 years in a representative longitudinal panel in the city of Taganrog (Rimashevskaya and Yakovleva 1998, Rimashevskaya et. al. 1991), and found that poverty increased sharply after 1991.

Ninety-seven percent of the longer-term poor live in rural areas (33 percent) or urban areas other than Moscow and St. Petersburg (64 percent) Overall, 27 percent of the Russian population lives in rural areas, 13 percent being longer-term poor. In urban areas other than Moscow and St. Petersburg, the study revealed 12 percent to be longer-term poor. And just as the poor are concentrated outside of Moscow and St. Petersburg, so are the non-poor concentrated inside; a startling 72 percent of all households in Moscow or St. Petersburg were never poor during the three-year study. And of the never-poor households in the study -- 45 percent of the sample -- 17 percent were located in these two cities, although the two cities accounted for just 11 percent of total households surveyed.

Like the 1992 and 1994 study, this study found a higher poverty rate and a higher longer-term poverty rate among larger households than among smaller households Only 6 percent of single-person households were among the longer-term poor during 1994-96, while 24 percent of households with five or more members were among the longer-term poor. Fifty-six percent of single-person households were never poor, but only 23 percent of households with five or more members were never poor.

On average, households that were always poor had approximately 4 members and households that were never poor had 3.0 members. The larger poor families also have, on average, more dependents, as shown by their higher dependency ratios.
Most other aspects of the poverty profile have not changed substantially since 1992-93. As before, children are more likely to be poor, while the elderly are unlikely to be poor. The older a person is, the smaller the chance that he or she is poor, and the older a household head is, the smaller the chance that person's household is poor. Although the rate of poverty among the elderly has increased along with the general trend, they remain at a lower-than-average risk of poverty. Men over the retirement age of 60 have the lowest rate of poverty in every round of the RLMS (early rounds as well as the later rounds reproduced here) and women past the retirement age of 55 have the second-lowest rate of poverty. Conversely, poverty rates are extremely high for children and households with many children. Gender has no significant effect on poverty status.

While these findings do not differ from previous analysis, the panel aspect of the data sheds more light on what is happening with age- and gender-specific poverty rates in Russia. The panel data show strikingly that it is whether an individual is always poor or never poor, not gender, that is critical in determining an individual's poverty status.

In the RLMS, open unemployment is strongly correlated with poverty particularly longer-term poverty. Forty-four percent of the longer-term poor reported at least one unemployed household member. In contrast, just 20 percent of never-poor households reported one or more unemployed household members.

Overall, pensioners in Russia -- whether old-age or disability -- do not face an elevated risk of poverty, and most of the longer-term poor are neither elderly nor receiving pensions. Almost 20 percent of households with one or more elderly member were longer-term poor, but only 6 percent of households with two or more elderly members were longer-term poor. The figures are quite similar for pensioners -- about half of households with two or more members who are receiving a pension were never poor.

Only single mothers with children face an elevated risk of longer-term poverty. However, this increased risk is relatively small; the share of single mothers in longer-term poverty is 19 percent while the overall longer-term poverty rate is 17 percent. And the longer-term poverty rate for other families with children – 24 percent -- is even higher than the rate for single-mother families.

Single elderly are much less likely than most to be longer-term poor; nearly 80 percent of such men and 55 percent of such women were never poor during 1994-96. Elderly men living alone had the lowest poverty rate of any group reviewed in the cross-sectional analysis.

Social Assistance Pilots

New targeting methods have been developed that improve on the method of fully documenting every household's income or expenditure. Three social assistance pilots introduced in the Komi Republic and in Volgograd and Voronezh oblasts in 1997-98 focus on the difference between what households actually consume and what income they report -- either to survey interviewers or social workers. Each pilot tries to estimate the additional amount of consumption that a hypothetical household could achieve over its reported income and uses this estimated household consumption to determine program eligibility.

In each pilot household per capita income and estimated per capita income or consumption were compared with the official regional subsistence minimum poverty line (developed by the Ministry of Labor in 1992 using local prices). To be eligible for these programs, a household's estimated consumption had to be less than a cut-off percentage of this poverty line -- 50 percent in Volgograd and Voronezh and 35 percent in Komi.

The findings of the three new poverty targeting pilots have clear policy implications for Russia. The new methodologies they used -- such as the proxy means test -- demonstrate that at a low administrative cost, with minimum capital investment and training, it is possible to target the poor more efficiently and to screen out more of the non-poor. The pilots have also found distinct differences between the longer-term poor and the temporarily poor, suggesting a need for separate interventions for these two groups.

Proxy Means Test Targeting

In countries such as Russia and Chile, with a large informal sector, it can be difficult and costly to verify household monetary income. Furthermore, in Russia and other countries a significant share of household food consumption comes from food grown on private garden plots. The true value of home-produced goods, can be very difficult to estimate because they are typically, produced with "costless" family labor, and their quality may be poorer than food items produced for sale.

A proxy means test is a way to estimate household consumption or welfare without extremely detailed information about household income. In proxy means testing, information is collected about characteristics of a household that are much easier to measure and verify than total income -- such as the number of children in a family. The household characteristics should be known to correlate with poverty, and – ideally -- should be easy to measure, and requiring little administrative cost to verify.

The simulated proxy means test for Russia correctly identified 57 percent of the poor and 77 percent of the non-poor. The pilots effectively identified the non-poor but were less effective at identifying the poor The proxy means tests were usually slightly better at identifying the poor than the actual methodologies, but not strikingly so except in the case of Komi.

Why does it seem so difficult to identify the poor? Not because of ineffective methodologies, but rather because generally it is extremely difficult to distinguish the poor from the non-poor in Russia and in other countries of the former Soviet Union. The lack of sharp poverty correlates unfortunately translates into less than ideal results and high rates of exclusion.

The proxy means test results show that existing benefits could be targeted much better. A roadblock for means testing is that means testing (determining household income and wealth) is quite expensive even in countries with advanced tax reporting systems, and prohibitively expensive in Russia, where income disclosure is such a problem.