In a nutshell: Russians have endured a series of crises over the decades: perestroika, the collapse of the Soviet Union, the emergence of a market economy, monetary reforms, plummeting oil prices, etc. It might seem logical, therefore, that Russians would have learned well to adapt to the prospect of economic hardship.
In fact: For years, Russians have failed to develop the ability to adapt to financial vulnerability — that is, to the risk of falling below the poverty line. This is associated with the fact that Russians are less satisfied with life and rate their well-being lower as well. With the prospect of falling poverty an ongoing problem, these indicators have not improved.
Researchers from the World Bank and the Higher School of Economics conducted Russia’s first study of how the population adapts to financial vulnerability. They analyzed data from the Russian Longitudinal Monitoring Survey (RLMS) – HSE for the years 2002 through 2017. It turns out that Russians have not adapted to financial vulnerability for many years. This applies to almost all population groups, with only minor variations. For example, people with higher education, rural residents and women have relatively more difficulty adapting to the risk of poverty.
‘Financial vulnerability’ refers to a significant risk of falling below the official poverty line due, for example, to loss of a job or other sources of income. Russia provides an interesting field for research in this regard. Despite having made a radical transition from a planned to a market economy, the country managed to improve people’s standard of living significantly and reduce inequality. However, no study analyzed how vulnerable groups of Russians fared during this unusual period of economic growth and decline.
The authors note that existing vulnerability studies of countries in transition are based on panel data covering short timespans. In the case of Russia, the RLMS corrects for this because it has gathered data over the last two decades.
Earlier studies, including those in Russia, have shown that people are unable to adapt to poverty. Even if they have experienced poverty in the past, they do not lower their expectations of improving their economic situation in the future. Another study shows that people can adapt to such life events as having children, divorce or becoming widowed, but not to unemployment.
This raises the question of financial vulnerability. Do people adapt to the likelihood of becoming poor in the future? If so, on what does the adaptation process depend?
The RLMS-HSE served as the basis of the current study. Monitoring respondents since 1994, the study is currently run by HSE University Demoscope with the participation of the Carolina Population Center of the University of North Carolina, Chapel Hill (USA) and the Institute of Sociology of the Russian Academy of Sciences.
The sample includes 4,000-6,000 households and 8,000-17,000 respondents annually. For its main variable, this study analyzed total household incomes per capita. The authors of the study focused on the period from 2002 because per capita income grew that year by 7.1%, which is close to the average growth of 6% for the period of 2002-2017. Incomes grew by 27% in 2001, a significantly higher figure. The study also focused on Russians aged 16 and older. In all, 83% of respondents have secondary or higher education, 64% are employed and 74% live in cities.
The authors used a recently developed methodology for setting the welfare threshold that identifies vulnerable population groups. It uses a national or international poverty line to determine who is classified as poor. Russia defines its poverty line to be an income below the subsistence minimum for the region in question. Respondents above that benchmark are divided into two groups: those who are vulnerable — meaning those with a significant risk of falling into poverty — and those with higher incomes. The vulnerability index is formally defined as the proportion of the non-poor during an initial period that falls into poverty in the subsequent period.
To determine whether people do adapt to such vulnerability, researchers divided financially vulnerable people into several groups — those who became vulnerable one year ago, one or two years ago or three or more years ago. Adaptation to vulnerability means that the relationship between subjective well-being and social vulnerability weakens over time.
The results confirmed that Russians do not adapt more over time to financial vulnerability. Almost all population groups displayed poverty risks associated with lower subjective well-being and satisfaction with life. According to the data obtained, the overall level of vulnerability stands at approximately 27% (meaning the per cent of the non-poor population this year whose incomes will fall below the poverty line next year).
The study did not find a significant difference between men and women in their adaptation to the risk of poverty. Nevertheless, a certain gender gap does exist. The authors note that men adapt somewhat better over the long term (more than one year) — their subjective well-being does not suffer as much as women’s does.
Also, during prolonged periods of vulnerability, subjective well-being declines further in rural than in urban areas.
People with a higher education adapt with greater difficulty to the risk of falling into poverty. When vulnerable to poverty, they are less satisfied with life than are people without university degrees. However, those differences disappear if vulnerability continues for a longer period.
There is also a U-shaped relationship between age and duration of vulnerability, which correlates with a U-shaped relationship between age and subjective well-being.
The issue of poverty is still relevant for many countries. However, as the authors of the study note, attention increasingly shifts from the poor to vulnerable populations as social programmes help reduce poverty. For example, the UN has called for providing such people with greater rights to economic resources and access to basic services.
The authors note that this study is important not only for Russia but also for other countries with economies in transition that face similar problems.