Russia experienced a precipitous drop in real income from March 1993 to September 1996. As the percentage of the "objectively" poor (those with income below the official poverty line) increased, the percentage of the "subjectively" poor (those who felt poor) decreased. Perception of the subjective poverty line went down even faster than real incomes.
During Russia's economic transition real income declined precipitously for most of the population. How were Russians' perceptions of the minimum income level needed to survive affected by such a rapid decline in their incomes?
Based on data collected from repeated surveys of individuals during the period from March 1993 to September 1996, Milanovic and Jovanovic find that the subjective estimate of that minimum income for an adult Russian decreased by about 1.7 percent each month.
This sharp reduction in the subjective poverty line meant that proportionately fewer people felt poor. However at all times at least 60 percent of the population considered itself poor.
In other words, the percentage of the "subjectively poor" tended to decline as the perception of the needed minimum was reduced. In this somewhat unusual situation, the percentage of the subjectively poor decreased more or less in step with a reduction in people's real income. Only larger-than-usual income decreases were needed to jolt the population—that is, to keep the percentage of the subjectively poor unchanged.
The percentage of the self-assessed poor was always lower than the percentage of the poor according to the "social" subjective poverty line. This suggests that pockets of the population regarded their own income as adequate although in the public perception they were poor.
This in turn suggests two mechanisms for adapting to worsening circumstances: 1) a reduction in what people perceive to be the minimum income needed for survival and 2) the existence in the population of pockets of people who demand even less than others.
This paper—a product of Poverty and Human Resources, Development Research Group—is part of a larger effort in the group to study the social effects of transition to a market economy. The study was funded by the Bank's Research Support Budget under research project "Changing Ideas about Poverty in Russia" (RPO 681-42). Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Criselda Argayoso, room MC3-568, telephone 202-473-3592, fax 202-522-1153, Internet address cargayoso@worldbank.org. Branko Milanovic may be contacted at bmilanovic@worldbank.org. (32 pages)
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