Income and Cost of Living Distribution Found to Be Similar in Russia and US

Researchers at the HSE Faculty of Economic Sciences Laboratory for Wealth Measurement analysed income and cost of living data at the sub-regional level in Russia (municipalities) and in the US (counties). The study reveals that territorial differences in the cost of living are more pronounced in Russia compared to the United States. However, the distribution of overall income across settlements of varying sizes is quite comparable in both countries. The article has been published in the HSE Economic Journal.

Economists typically use two indicators to measure material well-being: nominal incomes of the population, and incomes adjusted for the relative cost of living. The latter is reflected in the cost-of-living index, which is calculated as the ratio of the cost of a fixed set of consumer goods and services (also known as a consumer basket) in a specific region to the national average. This set of goods and services remains the same throughout the country.

The authors stress the significance of examining not only incomes but also consumer prices to prevent a distorted picture. In certain regions, it is possible to live decently on a relatively low income, whereas in others, surviving on the same amount may be a challenge.

The cost-of-living index in Russia varies from 73% to 178%, with consumer prices in certain territories being either very high, eg in Anadyr, Petropavlovsk-Kamchatsky and Magadan, or very low, eg in Nazran, Saransk, and Belgorod. In the United States, a comparable indicator (calculated based on the average consumer spending structure of American households) varies from 83% to 118%.

The research paper uses published data from Rosstat (on the cost of living and personal income broken down by municipalities and urban districts) and the US Bureau of Economic Analysis (on personal income by county, metro, and other areas). Rosstat calculates the relative cost of living based on a fixed set of goods and services, which includes food, alcohol, clothing, footwear, household items and appliances, furniture, tableware, gadgets, construction materials, medicines, eating out, public transport, rent, education and training, medical procedures, and much more. Income encompasses all taxable sources, including wages and salaries, earnings of individual entrepreneurs, pensions and allowances, interest on deposits, lottery winnings, insurance reimbursements, and transfers. However, it does not cover unofficial income, such as unreported revenues earned from selling vegetables grown in one's backyard.

By employing the methodology of previous research, the economists categorised Russian municipalities (including municipal and urban districts) into large and small urban agglomerations based on population size: those with more or less than 50,000 inhabitants. As a result, they identified 556 large urban agglomerations and 1,761 small ones. In approximately half of the small agglomerations, the average per capita income was found to be below or equal to 200,000 roubles per year, while in 2% of them, it was 700,000 roubles or more. For large agglomerations, these indicators were found to be 13% and 14%, respectively.

Both Russia and the US share a similar distribution of income across settlements of different sizes. Generally, larger settlements tend to have higher per capita incomes of residents. However, the higher cost of living in these larger settlements only partially evens out the purchasing power of the population living in various types of settlements.

Alexander Surinov
Co-author of the paper, Head of the Laboratory for Wealth Measurement, HSE Faculty of Economic Sciences

The study authors expect its findings to be useful in designing public policies aimed at reducing unwarranted price discrepancies across the country and in implementing measures of social support.

In order to formulate economic policies, particularly those aimed at reducing poverty and limiting income inequality, it is essential to accurately evaluate these phenomena and the underlying factors that contribute to them. At the same time, it is crucial to analyse the divisions between territories not only based on administrative boundaries, but also considering economic relations between districts.

Alexander Surinov
Co-author of the paper, Head of the Laboratory for Wealth Measurement, HSE Faculty of Economic Sciences

IQ

May 16, 2023