Poverty and Social Assistance

1. Poverty and Social Assistance Vladimir Mikhalev Presented By: Cory Mand and AdedamolaLitan

2. Pre-Transition Poverty • Respectable standard of living • Sufficient income for food • Housing was provided universally at a nominal price • Health care and education was paid for by the government • Pensions were sufficient for elderly • Employment was guaranteed • Wages were typically paid on time

3. Wages • Almost Immediately the average wage’s purchasing power was cut in half • By 1998 the average real wage was roughly 40 percent of pre-transition level • During the months of August and September in 1998 the ruble lost much of it’s value causing a drop in worker’s real wages • Employers were finding it difficult to pay their employees on time with only about 2/3 of earned wages being paid each month • Wages were being delayed anywhere from 2 to 6 months and when paid they weren’t adjusted for the high inflation* (roughly 20 percent per month from 1992-1994) • Unemployment rates were on the rise

4. Wages (Cont’d) • Overall the drop in workers real wage purchasing power combined with workers not being paid on time and higher unemployment caused many problems for the working class in Russia. • More people relied on other sources of income such as entrepreneurial profits, pensions, and social benefits. • Total income dropped from 80 percent composed of workers wages to only a mere 40 percent.

5. Inequality in Russia • Immediately following the transition the gap between the rich and the poor in Russia greatly increased. • The income ratio between the richest and the poorest ten percent went from 3.4 in 1991 to 13.3 in 1998.

6. GDP per Capita • Derived from the Penn World Tables

7. Poverty • Measurement of poverty, by the official government, Goskomstat, is complicated by definitional problems and issues of inflation • Drops in personal income and a more uneven distribution implies a rise in poverty, with the rate more than doubling in 1992. • An alternative way of assessing poverty was by surveying people’s opinions about their standard of living. 80% of the people believed themselves to be in poverty. • Employment in public sectors and agriculture were more likely to be associated with poverty; the highest wages were in oil, gas, coal and energy supply industries.

8. Regional Differences

9. Living standards and poverty rates were also associated with types of community. • Poverty was higher in smaller towns than in regional centers. • High incomes were concentrated in the large urban commercial and banking centers, particularly Moscow. • The transformation of economies elsewhere were impeded by lack of transport and other infrastructure. • Smaller cities and towns suffered more from decline of local industrial enterprises, and there were few opportunities in rural labor markets. • Rural poverty was worse in areas where subsistence agriculture was not feasible.

10. Other Source • Some key determinants of poverty were: • Age: People under the age of 64 were more likely to live in poverty • Education: The less educated were more likely to live in poverty • Gender: Women, especially single mothers, were more likely to live in poverty. • Employment: The unemployed were more likely to live in poverty. Information provided from this website: http://www.census.gov

11. Relative Odds

12. Policy • The decreasing levels of income and rising wage inequality have been worsened by the failure to maintain either the pay levels of public employees or the level of the official minimum wage. • The minimum wage, and therefore government wages and social benefits, has lagged behind inflation. During the high inflation of 1992 and 1993, the minimum wage adjusted every three or four months. • Unlike other sources of income, government paid pensions, which are received by about 25 percent of the population, have been more equal. • Between 1992 and 1994, the average pension fell from 40% to 25%. • All workers were legally entitled to sick pay, maternity benefits, child allowances and unemployment benefits. However, the level of child allowance and unemployment benefits were meager.

13. Policy (Cont’d) • Universal poverty benefits have been considered by the Duma, such as guaranteeing all citizens an income level equal to at least 50% of their subsistence minimum. • Some of the problems the Universal Poverty Benefits have posed include: • The lack of an administrative framework for income testing. • The presence of illegal activities that make it impossible to monitor household incomes. • Social security budgets were unable to provide enough funds to fill the poverty gap. • As experienced by Poland, the funds might be claimed by people above the poverty line. • Cash support has also been insufficient, accounting for a trivial share of the assistance to poor families with children. • The existing local social protection departments had the potential to alleviate poverty significantly. However, the poor financial conditions of most regions rendered the majority of such programs ineffective, with only 10 to 15 percent of those in poverty receiving social assistance.

14. Conclusion • It has been said that the working class have suffered the most, from the transition, with privatization removing what was once at their disposal. • Assistance to the poor can only be marginally effective in the absence of an expanding economy. Economic growth would not solve the problems of wage inequality. • Despite its importance, social welfare policies have been neglected. • The deterioration in living conditions, which was exacerbated by the size of the country, undermined economic reforms and the process of democatization.

15. Case Study of Krasnoiarsk • Field study carried out by the author in the central Siberian city of Krasnoiarsk. • Population of roughly 1 million people • Administrative center of the largest region in the Russian Federation • Poverty higher than average, lower living standards • Economy based on machine-building and military production. • Wage rate higher, however cost of living higher as well since it was in Siberia

16. Case Study (Con’t) • Social welfare systems are locally designed and implemented. • 3 Major criteria for these programs: • 1. Based on income tests • 2. In-kind support more prevalent than direct monetary assistance. • 3. Majority of funding is provided locally as opposed to from central government • Delivery of assistance became more and more decentralized

17. Cast Study (Cont’d) • Infrastructure set up for social assistance was inadequate. • Roughly 80 percent of families needed some form of assistance. • Cash support was one of the least likely forms of assistance making up only 4 percent of total government transfers to the poor. This was due to problems with high inflation. • Much of compensation came in the form of assistance with housing, utilities and transportation costs. • Children received most of the in-kind support in the form of subsidized school uniforms, meals, and recreation.