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Chronic Poverty in Russia Has Decreased in the Past Two Decades

Causes include income growth and government transfers

ISTOCK

Situation: Many Russian people live below the poverty line. According to public polls, over a third of Russians consider themselves to be poor.

In fact: Poverty has been falling in Russia since the early 1990s — from 34% in 1994 to 12% in 2019. Part of the population has experienced situational poverty due to economic crises.

Now in more detail

HSE University and the World Bank have analyzed poverty trends in Russia from the early 1990s to the present. Unique in its scale, this study provides a detailed examination of the rises and falls in Russians’ income over a period characterized by a number of economic crises. The analysis used official statistics and the RLMS-HSE (Russian Longitudinal Monitoring Survey – HSE). The researchers have concluded that government transfers make a significant contribution to addressing the problem of extreme poverty in Russia.

What is it all about?

The researchers focused on the transition in the Russian economy caused by the collapse of the USSR. Although depicted vividly in books, films, and the arts, the hardships faced by the populations of post-Soviet territories have yet to be analyzed from a scientific point of view.

Until recently, there were no comprehensive studies of poverty trends in Russia from the beginning of the 1990s, with the exception of some papers based on the RLMS-HSE data covering a shorter period. Now that three decades have passed since the dissolution of the USSR and Russians have endured many economic shocks, a more global view is needed on what has happened to the standard of living among the most vulnerable population groups.

The authors of the project — Kseniya Abanokova (HSE University) and Hai-Anh Dang (World Bank) — have analyzed how poverty trends changed in the ‘wild 1990s’, what happened to the poverty level during the sharp surge in oil prices in the 2000s and subsequent spate of crises caused by international conflicts, and how all of this affected Russians’ well-being.

In 2021, the poverty threshold in Russia is 12,702 Russian rubles for the working-age population, 11,303 Russian rubles for children, and 10,022 rubles for pensioners. Russians whose income is below these figures are officially considered to be poor.

The researchers say that market reforms were not the only cause of poverty in Russia — an assessment supported by some previous studies. However, the liberalization of prices in the early 1990s took its toll, resulting in a sharp increase in poverty compared to the late 1980s. For instance, one of the studies demonstrates that the number of poor people in Russia increased from 2% in 1987–88 to 50% in 1993–95. Inflation in the first half of the 1990s pushed three out of ten Russians into poverty.

Incomes were in flux, which resulted in critical instability for many citizens. 'The poverty rate fell from its maximum of 33.5% in 1992 to 22.4% in 1994, then grew again after the financial crisis of 1994,’ the authors write.

 

The researchers say that the downward trend of poverty developed against a backdrop of growing GDP. By 1997, the Russian economy was demonstrating signs of recovery, but the period of instability was not yet over. Previous studies note that the rise in unemployment and salary delays in 1994–1996 harmed the poorest families the most.

According to the Public Opinion Foundation, 33% of Russians considered themselves to be poor, 1% called themselves rich, while 64% thought they had an average income at the end of 2020. At the same time, 40% of Russians believe that poor people have little chance of improving their well-being.

All poverty indicators peaked in 1998, when a global financial crisis hit the Russian economy. The social system was unable to protect the most vulnerable households, who found themselves in very difficult circumstances.

After 1998, the Russian economy began to recover, but the poverty level did not return to 1994 values until the end of 2003. People at the extreme end of poverty enjoyed a considerable improvement in well-being during that period. The standard of living continued to grow despite problems with liquidity in the banking sector, whose economic growth slowed down in 2004, the authors note.

The global financial crisis of 2008 caused the Russian economy to shrink by 8% in 2009. ‘Although the crisis reduced people’s incomes, poverty did not grow as much as in the previous period,’ the researchers say. It reached its minimum level (11%) in 2012–2013.

New shocks awaited the Russian economy following another global financial crisis in 2014. First, oil prices plummeted. Then, Russia was hit by economic sanctions from developed economies against the backdrop of the Russia-Ukraine geopolitical conflict. The subsequent reduction in income resulted in poverty rising to 13% in 2015 — its highest level since 1998. This was followed by a downward trend. In 2019, 12% of the Russian population (more than 18 million people) were poor according to the RLMS.

How was it studied?

The authors analyzed RLMS data for the period from 1994 to 2019 to determine poverty trends in Russia over the past two decades. They used the decomposition analysis method — a technique for solving problems by separating or decomposing the whole into parts. Ksenia Abanokova explained that decomposition helped understand how income growth and reallocation affected poverty.

Given the importance of the events of 1998, 2004, 2009, and 2015 for the Russian economy, the authors split the analyzed period into the following five sub-stages of equal duration:

 transition period and the financial crisis of 1998 (1994–1998)

 first years of economic growth (1998–2004)

 period of intensive economic growth (2004–2009)

 world financial crisis and period of stagnation (2009–2014)

 recent period (2014–2019)

The study focused on global poverty trends in Russia, poverty dynamics (including income dynamics), and the key contributing factors to a considerable reduction in poverty.

What are the findings?

One of the main conclusions made by the researchers is that poverty is divided into situational (temporal) and chronic types. Situational poverty is caused by shocks that push people below the poverty line, but households usually bounce back from these shocks with time. Chronic poverty lasts longer.

The study shows that the number of households trapped by chronic poverty decreased from 28% during the 1994–1998 transition period to 5% in the most recent period. To put that into context, during the transition period, chronic poverty was at a level just under half that of situational poverty, affecting 59% of households. By 1998–2004, the situation had changed, with levels of chronic poverty and situational poverty at 24% and 70% respectively.

Therefore, the authors conclude that the majority of the Russian population faced situational rather than chronic poverty from 2004 to 2019. These conclusions match the results of studies about the early post-Soviet period.

According to the researchers, economic growth in Russia in recent decades has been pro-poor in most respects. The analysis shows that the incomes earned by the 20% of the population at the lowest level of well-being have increased by 5%, while the increase in the incomes earned by the 20% of well-off Russians did not exceed 4%. From 1994 to 2019, the incomes of the poorest 5% of the population grew by about 6.8% per year, while those of the group with a high level of well-being rose by a little more than 2%. The average income growth in Russia for the period was 3.3%.

The results of the new analysis also support previous studies that show a reduction in inequality in Russia over the past decade. The researchers point out that income growth has played a key role in this reduction. The share of this factor was 75% in the 2009–2014 period, 88% in the 2004–2009 period, and 100% in the 1994–2004 period.

The authors note that government transfers (allowances, pensions, etc) were not as crucial, but were still quite important for the poorest people. ‘Although changes in government payments contributed to less than 6% of the total poverty reduction in the post-crisis years of 1998–2014, they played an essential part in decreasing the number of extremely poor people — the population living far below the poverty line,’ the authors comment.

Why should we care?

While Russia is classed as a country with above-average income according to World Bank statistics based on gross national income, the problem of poverty still affects many Russians. Previous research by Kseniya Abanokova and her colleagues shows that even temporary poverty does long-term harm to the subjective well-being of Russians.

According to Rosstat, there were 18 million poor people in Russia as of Q1 2021 (12% of the entire population).

The authors point out that income growth plays a major role in reducing poverty in Russia, but that social measures are effective in addressing extreme poverty. However, the reallocation of funds may be even more impactful, in the authors’ opinion, particularly in times of falling incomes.

IQ

 

Authors of the research:
Kseniya Abanokova, Junior Research Fellow, Centre for Comprehensive Social Policy Studies, HSE University
Hai-Anh Dang, World Bank
Author: Marina Selina, November 10