The Role of the Safety Net and the Labor Market on Falling Cash Consumption in Russia: 1994–96 A Quintile‐Based Decomposition Analysis

Abstract

This paper investigates the relative importance of changes in social safety net support and labor market in explaining the decline in the purchasing power of Russian households that occurred during the period 1994-96. Drawing on three cross-sections of the Russian Longitudinal Monitoring Survey, we find that labor market changes have been the main cause of the observed decline in cash consumption. Among these changes, reductions in the impact of the time spent in employment and increasing frequency of wage arrears are most important, more so than increases in open unemployment or the fall in real wages among workers who were fully paid. The contribution of falling state transfers to cash consumption is nonetheless substantial. We also find that the sources of the decline in household welfare vary substantially across quintiles in the distribution.

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