Buying Less, but Shopping More: The Use of Non-Market Labor During a Crisis

1. Buying Less, but Shopping More: The Use of Non-Market Labor During a Crisis David McKenzie, World Bank Ernesto Schargrodsky, Di Tella

2. “Women, the poor, children, the unemployed, etc. would be more willing to spend their time in a queue or otherwise ferreting out rationed goods than would high-earning males” (Becker 1965, A Theory of the Allocation of Time).

3. Adjustment to Aggregate Shocks • Reduced set of risk-coping mechanisms • Formal and informal credit dries up • Rising inflation erodes value of savings • Price of assets fall. • group-based informal insurance can’t protect against common shocks • Unemployment limits use of labor market => Total expenditure falls by as much as income

4. Alternative Coping Strategies • Reallocate expenditure, spending more on basic foods • Take actions to change how much food a given amount of expenditure can buy • Spend more time searching • Shop at a wider variety of stores • Buy lower quality products

5. Non-Market Use of Labor • When income falls, consumers can substitute goods for time in the production of consumption by increasing the time devoted to shopping and other home production activities. • It has proven difficult, however, to test this implication. • Standard expenditure surveys generally provide little information on shopping consumer behavior. • When expenditure surveys including detailed shopping data exist, they usually have a cross-sectional structure with no exogenous source of income variation.

6. Non-Market Use of Labor • We use high-frequency (10-day) expenditure data from LatinPanel, a market research firm, to analyze shopping behavior during the 2002 Argentine crisis. • The crisis provides a large exogenous shocks to households’ income which allows to identify the causal effect of income on shopping activity.

7. Preview of results • Consumers are found to shop more days a week at a wider variety of channels during the crisis. • The fall in income explains much of the increase in shopping frequency. • Increased shopping frequency results in lower prices and more priced goods, mitigating up to 40% of the fall in expenditure.

8. Outline • Macroeconomic Overview • Data • Basic Facts – changes in expenditure, shopping frequency, stores visited and quality • Explaining the increase in shopping frequency • Prevalence as a mitigation mechanism • Conclusions

9. The Macro Context • Recession 1998(2)-2001 • December 3, 2001: corralito – partial freeze on deposits • January 6, 2002: govt. votes to end 11 years of convertibility and float the peso • Real GDP fell 10.9% in 2002, private real consumption 14.4% • Unemployment increases to 21.5% • Poverty increases to 37.7%

10. Exchange Rate

12. Measure of Liquidity Effect of Corralito • Discount rate offered by exchange houses for exchanging money inside the corralito for cash

13. Price Dispersion • Average of coefficients of variation for individual products weighted by 2000 expenditure shares

14. LatinPanel Data • Market research firm rotating panel of 3000 households nationwide for 2000-02 • Purchase diaries kept of expenditure on food, cleaning and beauty products • Record day of purchase, amount, units, quality, channel for each 10-day period • Two main quality levels for each product: premium and priced goods

15. Products • Food, cleaning and beauty products with brands • Fresh fruit, bread, fresh meat, and meals out not included • Mean expenditure shares: Food 76%, cleaning 13%, beauty 11% • Calculate that LatinPanel food is about 50% of total food basket, total LP expenditure is around 15% of monthly income • Mixture of necessity and luxury items

16. Hypermarkets Supermarkets Discounts Wholesalers Drugstores Kioscos (candy store) Almacenes (small grocery store) Autoservicios (self-service) Trueque (Barter Clubs) Other channels (Ferias etc) Ten Channels

17. Pseudo-panel structure • For confidentiality restrictions LP does not provide data at the individual level, but instead aggregated into pseudo-households • Pseudos contain all households with the same demographic and socioeconomic characteristics: Region *Socioeconomic Class * household size * housewife’s age * youngest child age • In practice just over 400 pseudos • Can also use this structure to match with labor force survey

18. Income • Labor-force survey (EPH) provides income for matched pseudo-households: available for months of April and September each year only • Monthly average wage from Social Security system to extrapolate change in average income between EPH months.

19. Buying Less • Real LatinPanel total expenditure fell • 10.6% between 2001 and 2002 (after 2.5% fall between 2000 and 2001) • Quantity falls for all food (apart from yerba mate and pasta) and for all cleaning and beauty products • Expenditure on premium products fell 17.6% • Expenditure on priced goods rose 2%

20. Shopping more days

21. Shopping in more places

22. Measuring shopping frequency • Channel-days: sum of the number of days spent shopping at each of the ten channels in the 10-day period • Average pseudo-household spent 6.28 channel-days per 10-day period in 2001 and 6.71 in 2002 (7% increase)

24. Empirical Questions • Do people shop more as a response to falling incomes? • Or isshopping more just another cost of the crisis, reflecting increases in liquidity constraints, inflation, or price dispersion? • If this is a mitigation mechanism, how important is it?

25. The Income Effect (Cross-section) • On the one hand, falling income lowers the opportunity cost of time, increasing shopping. • On the other hand, falling income reduces consumption and the gains from shopping. • Cross-sectional analysis: look at relationship between income and shopping frequency in 2001, prior to the crisis. • Non-parametrics: Freq = f(Labor Income) • Semi-parametrics: control also for quantities

28. The Income Effect Over Time • Look at changes in income and shopping frequency for pseudos over time • Control for pseudo-household fixed effects to capture time-invariant determinants of shopping frequency

30. Other crisis effects • Corralito: restricts cash on hand, reducing liquidity • Expect this to cause people to shop more frequently buying fewer items each time • Inflation erodes nominal balances, causing consumers to lower their reservation prices and increase shopping. • Inflation generally accompanied by Price Dispersion • Consumers will want to hold a lower stock of knowledge about prices • May need to increase or decrease search to hold this smaller stock of information

31. Aggregate time trends • Add time effects • Allow effect of inflation, price dispersion, and corralito to differ by household • Construct pseudo-household CPI and price dispersion • Interact Corralito with credit card ownership

33. How prevalent is this for crisis mitigation? • One of the most prevalent mechanisms • 66% households use it. • 60%-80% of households use different consumption strategies. • Instead, 13% use labor market, and between 2 and 11% use formal or informal credit, although adjustments in the labor and credit market have received much more attention in the literature.

35. Why shop more? • To search out lower prices for the same products • Instrument channel-days with EPH income

36. Results • Shopping one more channel-day results in a 18% fall in the price of same product, along with 2% saving from switching to cheaper brands • Crisis is estimated to increase channel-days by 0.20, so estimated 4% saving in price • Expenditure fell 10%, so shopping increase mitigates approximately 40% of fall in expenditure through cheaper prices.

37. Conclusions • Argentine consumers increased their shopping frequency as means of coping with the crisis • Showed a mitigation mechanism that standard income and expenditure surveys provide little information about • Mechanism is used by many households and has significant effects • In the presence of aggregate shocks which prevent households from taking their labor to the labor market, non-market uses of labor like searching for better prices provide an alternate way for households to smooth consumption.