CHILD POVERTY IN RUSSIA Alarming Trends and Policy Options

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1 UNICEF REPORT CHILD POVERTY IN RUSSIA Alarming Trends and Policy Options L. N. Ovcharova D. O. Popova INDEPENDENT INSTITUTE OF SOCIAL POLICY MOSCOW UNICEF Moscow

2 Preface UNICEF works against Child Poverty because poverty-related opportunities denied to children have a practically irreversible impact upon them and the societies they live in. In practical terms, of interest to the Russian Federation, protecting children from the sharpest edges of poverty during their formative years is both a mark of a civilised society and a means of addressing some of the evident problems that affect the quality of life in economically developed nations. Life opportunities ought not to be determined by the circumstances of birth. But evidence of both social statistics and everyday experience indicates that those who grow up in poverty are at a marked and measurable disadvantage. High rates of child poverty are an unambiguous contradiction of equality of opportunity. It would be both useful as well as relevant to see this exploratory study on Child Poverty in the Russian Federation 2005 in light of a recent publication prepared by UNICEF entitled Child Poverty in Rich Countries The latter presents the following key findings: Higher government spending on family and social benefits is clearly associated with lower child poverty rates; However, variation in government policy appears to account for most of the variation in child poverty in Organization for Economic Cooperation and Development (OECD) countries. Therefore most OECD countries appear to have the potential to reduce child poverty below 10 per cent without a significant increase in overall spending; No OECD country devoting 10 per cent or more of GDP to social transfers has a child poverty rate higher than 10 per cent. No country devoting less than 5 per cent of GDP to such transfers has a child poverty rate of less than 15 per cent; There is a close correlation between growing up in poverty and the likelihood of educational under-achievement, poor health, teenage pregnancy, substance abuse, criminal and anti-social behaviour, low pay, unemployment, and long-term welfare dependency. While material or income poverty is the easiest measurement of child poverty, one should not neglect the fact that child poverty is influenced by many other, difficult to measure factors, including family love and security, parental time and skills, community support and friendship, and the quality of the environment children grow up in. At the outset it is fundamental to recognize that child poverty is affected by a combination of social trends, labour market conditions and government policies. Therefore it is within the scope and capabilities of governments, thus a matter of 2

3 political will and priority setting, to use the structure of government budgets as well as tax and benefit policies to substantially reduce child poverty. As we approach the end of 2005, social issues seem to be high on the political agenda in the Russian Federation with a debate and great expectations surrounding the additional US$4 billion to be allocated to health care, education, housing and agriculture over the next few years. It may be the right moment to put children s needs first. Children don t deserve to be poor, it is their right not to be poor. This document more than justifies itself by one revealing fact - close to one million questions have been directed to the President of Russia through a call center at the time of writing with the dominating issues being wages, pensions and housing problems, but with little direct reference to children, let alone child poverty. Carel de Rooy UNICEF Representative for the Russian Federation and Belarus Moscow, October

4 Acknowledgements Child Poverty in Russia has been prepared by Research Director Dr. Lilia Ovcharova and Senior Researcher Daria Popova, Independent Institute of Social Policy, the Russian Federation. The purpose of this report is to extend the empirical work, providing a check on assumptions and a more in depth consideration of key policy related data on exploring non income dimensions of child poverty that have particular significance within Russian Federation. These include aspects of deprivation that are underresearched and will contribute to a better understanding of child poverty in the Russian Federation. For further information please contact: United Nations Children Fund s (UNICEF) Russian Federation Moscow, Pokrovsky bulvar, d.4/17 str.1 Offices 19 and 20 Phone: +7 (095) Fax: +7 (095) The opinions expressed are those of the authors and editors and do not necessarily reflect the policies or views of UNICEF. The designations employed in this publication and the presentation of the material do not imply on the part of UNICEF the expression of any opinion whatsoever concerning the legal status of any country or territory, or of its authority, or the delimitation of its frontiers. 4

5 Contents Introduction Dynamics of living standards and poverty indicators in Russia over the reform years Dynamics of income level, structure and inequality Employment dynamics The social security system Poverty in Russia: definition, measurement, dynamics of level and depth Poverty in Russia in the context of the Millennium Development Goals Poverty profile: children have the highest risk of poverty in Russia The main characteristics of the poverty level and profile Poverty profile of families with children The poverty profile according to absolute and relative criteria Poverty among families with a favourable demographic situation Non-monetary forms of poverty in Russia as a whole and among families with children Non-monetary tangible assets: large families have poor housing conditions and single-parent families have no property Population health and accessibility of medical services Regional measurement of poverty Summary Appendix Appendix Appendix

6 Introduction As market relations were just taking shape in Russia, the political and expert community did not focus on the problem of poverty, since it was seen as a temporary exacerbation of socio-economic problems under the conditions of reform. Twelve years later, it has become evident that the pre-reform level of the population s average incomes has not been regained and that income differentiation has more than trebled. An inevitable consequence of the way things have developed was a growth of poverty, which, in turn, could not go unnoticed by the public, the executive and legislative authorities. Reducing the poverty level by half has been declared a priority goal of the development of Russian society. Analysis of the scale, depth and profile of poverty indicates that children are distinguished by the highest risk and greatest depth of poverty. The aim of this report is to provide a detailed analysis of child poverty in Russia The first chapter is devoted to analysis of the changes in the indicators of the standard of living and poverty in Russia during the market reform years. We consider these issues in order to understand the general context in which the standard of living of families with children forms. In that chapter, material is also presented explaining the methodology used for measuring poverty in Russia today and the role of government social programmes in the poverty reduction effort. A structural analysis of the poverty profile makes it possible to assess the share of families with children in the overall poor population. The second chapter of the report is devoted to these issues. A breakdown of the socio-demographic profile of poverty provides an opportunity for understanding the specifics of how the standard of living is composed and the tendency towards poverty among complete families with a small number of children, single-parent and large families. Since poverty is manifested in a multitude of forms, the third chapter is devoted to analysis of this question. Poverty among families with children and Russian poverty in general is assessed from the viewpoint of provision with non-monetary tangible assets and the accessibility of medical services. The fourth chapter focuses on regional disparities in Russia. Analysis of regional disparities in the standard of living and poverty indicates that the regional factor largely determines the chance of households falling into the poor category. That is why this subject has become one of the priorities in analysing child poverty. 6

7 1. Dynamics of living standards and poverty indicators in Russia over the reform years 1.1. Dynamics of income level, structure and inequality The main negative trends in the change in the welfare of Russia s population over the market reform years have been a drop in and larger spread of real incomes which resulted in poor population growth. If 1991 is taken as the point of departure for analysis, as that year preceded the radical economic reforms (Table 1.1 of Appendix 1), the sharpest drop in real incomes was observed in 1992 and In the former case, this was connected with the liberalisation of prices in January 1992, and in the latter, with the financial and economic crisis of August The data presented in Table 1 of Appendix 1 confirm that the pre-reform income level has yet to be achieved, despite a sustained rise in the people s real incomes which began in the year The income dynamics were matched by substantial changes in the income structure (Table 1.1). Table 1.1. Structure of money incomes of the population (%) Total cash incomes Including: Wages and salaries Income from business Social transfers Income from property Sources: 1. The Social Position and Standard of Living of the Population in Russia (2001, 2002), Statistical Digest, M., Goskomstat of the Russian Federation. 2. Russian Statistical Yearbook 2004, Statistical Digest, Russian Committee for Statistics (Rosstat), M., 2004, p Alongside declining incomes and wages, new income sources appeared, including income from business and from property. As a result, the share of these new sources of income in the structure of money (cash) incomes rose, while that of wages was steadily falling. In 1991, wages accounted for over 70% of per capita money income, but in , for 63-66% (concealed, officially unregistered wages included 1 ). The respective figures for incomes from business and from property were 13-15% and 5-7% (Table 1.1). The transformation of the structure of the population s incomes, against the background of an overall drop in them, was largely responsible for their significant differentiation, 1 Since 1999, the share of wages in the structure of income has been marked up by the Federal Government Statistics Service (FGSS) by an amount of concealed salaries, which constitutes the difference between total incomes and the amount of all the types of income officially registered or specifically evaluated. The share of concealed wages averages about 25% of total incomes. Without adjustment for concealed wages, wages would account for about 40% of total incomes. 7

8 which is rooted in impoverishment of the population groups living on wages and social transfers, and enrichment of those receiving income from business and property. The rapid rise in the wealth of the latter allowed some of them to regain the pre-reform standard of living. At the same time, most recipients of traditional incomes experienced a deterioration in their standard of living and many of them found themselves below the poverty line. Table 1.2 shows clearly the process of redistribution of money incomes between quintiles, which began in 1992, when the incomes of the poorest quintile fell by half: from 11.9% in 1991 to 6% in Right up until 1995, their incomes continued falling steadily: to 5.8% in 1993 and 5.3% in In subsequent years ( ), a trend was observed for them to stabilise around the % mark. In , however, their money incomes fell once again, to 5.6%. A similar but less pronounced process was typical of the three middle-income population groups: their cash incomes accounted for 57.4% of the total income in 1991 and 48.3% in This testifies to a deterioration in the financial position of the middle-income strata of the population. Correspondingly, in the fifth quintile, a significant income rise was observed: from 30.7% in 1991 to 38.3% in 1992, 47.9% in 1999 and 46% in Thus, in , the wealthiest quintile accounted for virtually half of all the money incomes of the population. The dynamics of the aggregated indices of income inequality, presented in Table 2, also reflect a growing stratification of the population: Goskomstat estimates that during the period the per capita income ratio 2 went up from 4.5 to 14.3-fold, and the Gini coefficient 3 from to The period of maximum increase in income inequality was 1991 to 1994, when the value of the Gini coefficient went up by more than 50%, after which a certain drop in differentiation was observed, until this was interrupted by the financial crisis in Table 1.2. Distribution of total money incomes of the RF population, differentiation coefficients for , % Money incomes, total The per capita income ratio is equal to the ratio of total incomes of decile 10 (with the highest incomes) and decile 1 (with the lowest incomes). 3 The Gini coefficient is equal to half the average deviation of each income unit individually from all the other income units, expressed in relation to the average income. 4 Although officially published assessments of income differentiation are quite high, it should be noted that the method applied by the FGSS to model the distribution of households in income terms is open to dispute. The FGSS assesses differentiation by means of an imitation model that virtually ignores regional differences in the cost of living (which leads to an overestimation of the real level of inequality) and regional differences in income inequality (which has the opposite effect). According to experts using other methods, the actual value of the inequality indicators are from 50% to 100% higher than the official ones [A.Yu. Shevyakov, A.Ya. Kiruta, Measurement of economic inequality, M., Summer 2002, p. 320], or even 250% higher. [Incomes and Employment of the Population.//Russian Federation Human Development Report for 2002, M., InterDialect, 2003, p. 43]. 8

9 First decile (with the lowest incomes) Second Third Fourth Fifth (with the highest incomes) Decile per capita income ratio Gini coefficient Sources: 1. Russian Statistical Yearbook 2002, Statistical Digest/Goskomstat of Russia, М., 2002, p Russia in Figures, 2003, Concise Statistical Digest/Goskomstat of Russia, М., 2003, pp Employment dynamics The state of the labour market exerts a direct influence on the welfare of the economically active population groups and an indirect influence on the standard of living of minors, most of whom live in families of working people. Supply on the labour market is formed by the economically active population, including both the employed and unemployed. The ratio between these groups and the total ablebodied population reflects the level of economic activity. Table 1.3 demonstrates a marked drop in the overall level of economic activity of the population over the reform years, which means loss of earned income by millions of people and, consequently, has a negative impact on the population s standard of living. This process was particularly intensive in the economic recession period. The situation changed in 1999, when economic activity reached its 1994 level. Table 1.3. Economic activity of the population, , % А. Level of economic activity of the population 1. aged years* total men women of working age* total men women B. Level of employment of the population 1. aged years total men women of working age 9

10 total men women Source: Russian Statistical Yearbook, 2004, Statistical Digest/Rosstat, М., 2004, p During the period of economic recession, the numbers of the unemployed grew 2.3-fold to reach 13.2% in 1998 (Table 1.4). Table unemployed as % of the economically active population Unemployed total 5, men 5, women 5, Unemployed registered with the government employment agencies (in , including the Chechen Republic) total 0, men 0, women 1, Source: Russian Statistical Yearbook, 2004, Statistical Digest/Rosstat, М., 2004, p The tendency towards a drop in unemployment appeared at the beginning of economic growth, thanks to which the share of unemployed fell to 7.9% between 1999 and This fall was most rapid in the first two years of economic recovery, but has slackened off in subsequent years (Table 1.4). In , the drop in the unemployment level was the result of a rise in the numbers of employed, rather than a fall in the numbers of unemployed. The welfare of the working people is determined by wage levels. A characteristic feature of the period of market transformations in Russia has been significant losses of the real content of wages, as received by 90% of the employed (Table 1.1 of Appendix 1). During the recession period, real wages dropped to a third of their previous level. Hence the fall in GDP and the relevant drop in real per capita incomes, which halved over this period. Economic growth pushed real wages up in 2000 and their dynamics started to outstrip these of GDP and the population s money incomes. In 2004, however, real incomes were still only 57.8% of the 1991 level. The loss in the value of wages has resulted in average wages falling far behind the minimum subsistence level (living wage). In 1991, for instance, the share of employed earning less than the living wage was no more than 8%, but from 1992 to 1998, it fluctuated between 25% and over 40%. Low wages largely accounted for the poverty of the working population. Wages began to rise only in 2002, the process encompassing 70% of the employed. According to 2004 data, only 25% of the employed received low wages, but this drop was still not enough to protect them from poverty, since a 10% level alone might be a safeguard against poverty. Another poverty-promoting factor associated with the new economic conditions was wage arrears which emerged in the early reform years, snowballed in the mid-1990s, and peaked in due to the financial crisis. According to official statistics, the 10

11 share of the employed whose salaries were delayed constituted 33% in 1998, though, according to REHM 5 data from the mid-crisis period, the figure was actually more than 60%. Once economic growth set in, wage arrears began to shrink. Currently, only 10% of employees are affected by wage arrears (data for early 2003). Another characteristic feature of the reform years has been an abnormally high differentiation of wages. Over the 12 year period, the average wage gap between the highest- and lowest-paid deciles has almost quadrupled. In 1990, for instance, the wage gap factor stood at 7.8, but in , it rose to (Table 1.5). Table 1.5. Wage gap dynamics in Russia, Indicator Difference factor Gini coefficient Sources: 1. Statistical Bulletin No. 9 (93), January 2003, М., RF Goskomstat, p Statistical Bulletin. No. 9 (108), November 2004, М., Federal Government Statistics Service, p. 46. It should be noted that, in Russia, wage differentiation is twice as high as income differentiation and constitutes the main reason behind the latter, since earned income remains the most significant and mass type of the population s incomes The social security system The basic principles of the Russian social security system were inherited from the Soviet era. Today, the social support system is still based on insurance payments, disability benefits and supports for persons who have given particular service to the state, while assistance to the poor is not a social policy priority. In general, all social transfers can be divided into social transfers in cash and social transfers in kind. The total amount of cash (monetary) social transfers in 2003 amounted to 9.4% of GDP. They are the main source of income for Russian people and constitute 13-15% of their money incomes, with 70-80% of these being, moreover, pensions. As the data in Table 1 of Appendix 1 show, after the liberalisation of prices in 1992, the standard of living of the elderly population fell just as that of the entire population did: the real value of the average pension dropped to 42.5% of the December 1991 level. Overall, from 1993 to 1997, the real level of pensions was on the rise: their annual growth averaged 106.6%. The biggest drop in pensions occurred during the period of the financial crisis (1998) and stagnation (1999), when their real levels fell to 29.2% and 27.3%, respectively, of the December 1991 level. Since 2000, periodical indexations of pensions have been made. Moreover, in 2000, all pension arrears were settled. As a result, in 2004 real pensions rose to 52.3% of the 1991 level, which 5 Russian Economic and Health Monitoring (REHM) consists of a series of countrywide representative surveys performed in Russia between 1992 and 2003, the results of which are available on the Internet [ The study covered about 12,000 respondents from 4,500 households, living in 32 regions of Russia. 11

12 constitutes 109.6% of the pensioner s minimum subsistence level. It should be noted that policy in relation to pensioners has promoted a rapid restoration of their incomes; this, however, cannot be said of families with children, in relation to which the role of government assistance has consistently fallen throughout the reform period. Today, the value of all social benefits is no more than 1% of the GDP and about 2% of total money incomes (Table 1.6). The most widespread benefits are as follows: temporary disability benefits; monthly benefits for children up to the age of 16 years and those in full-time education up to the age of 18 years, inclusively; unemployment benefits. Table 1.6. Monetary social transfers Share in GDP, % Share in total cash incomes of population, % Including: Pensions Stipends Benefits Sources 1. The Social Position and Standard of Living of the Population in Russia, 2002, Goskomstat of Russia, Moscow, 2002, p The Social Position and Standard of Living of the Population in Russia, 2003, Goskomstat of Russia, Moscow, 2003, pp. 108, The Social Position and Standard of Living of the Population in Russia, Rosstat, Moscow, 2004, pp. 141, 212. The drop in government support for families with children was manifested in a reduction in the family and maternity benefits item 6, which currently absorbs about a third of all the funds spent on all social benefits. In 1991, family and maternity benefits accounted for 77.3% of the total funds, in 1995 for 54%, while the 2003 figure was only 32.4% (Table 1.2 of Appendix 1). This change was the result of a refusal to pay monthly child benefits to all children indiscriminately and a switchover to paying such benefits only to children from poor families. Thus, in contrast to the majority of benefits which are insurance-based, monthly child benefits are distributed on a targeted basis. Even so, they are paid out to over 70% of all children and the size of such a benefit amounts to 3.3% of the child s subsistence minimum (Table 1.3 of Appendix 1). In addition, there are still debts with respect to payment of this benefit: at the end of 2003, the debt amounted to 22.9% of the total amount of benefits due (Table 1.2 of Appendix 1). As a result, in spite of the quite considerable outlays on the payment of benefits in general, they do not resolve the problems of poor families with children. Beginning from 2005, financial and legislative powers with regard to these benefits were handed over to the RF constituent entities, which will result in a worsening of the status of children in depressed areas. 6 Family and maternity benefits include: maternity benefits, birth grants, 0-18 months child care benefits, disabled child care benefits, and monthly benefits for each child. 12

13 Now let us take a look at data on social transfers in kind and in noncash form, which the population receive as benefits and subsidies in acquiring goods and services. A breakdown of the disposable resources structure by decile group (Table 1.7) indicates that, in contrast to cash benefits, which make the biggest contribution to the disposable resources of those in Decile One (poorest), benefits in kind are to a large extent accessible to the middle-income groups. Table 1.7. Structure of households per capita disposable resources by decile group, % decile 1decile 2decile 3decile 4decile 5decile 6decile 7decile 8 decile 9decile 10 Wages Pensions and stipends Monetary benefits Revenues from personal subsidiary plots in money form Revenues from personal subsidiary plots in kind Benefits and subsidies in kind Monetary assistance from relatives Other receipts Total Source: calculated from NOBUS data for the 2nd quarter of According to our estimates based on the NOBUS data, the most common are housing and amenities benefits (41.4% of households enjoy these benefits) and transport subsidies (38.7%). In location terms, it is transport benefits that are the most differentiated: they are enjoyed by 52.8% of households in cities with a population of one million or more, but only by 27.4% of rural families. Recipients of subsidised sanatorium vouchers are found among only 2.6% of families (4.9% in cities with over one million inhabitants and 1.5% in rural areas). Recipients of subsidized medicines and medical services are found in 19.8% of families and there are no significant discrepancies in location terms: 22.2% in cities with a population of one million or more, and 17.9% in rural areas. In addition, there are benefits for: keeping children in preschools; paying for food, including for children at school; compensation for expenses on gasoline and repairs to motor transport; other receipts in kind (social transfers from the employer enterprise that are not included among the above services, material assistance, humanitarian aid, etc.). According to NOBUS data, 50% of Russian households receive federal social benefits. In value terms, these programmes account for about 9% of the total volume of disposable resources of households participating in the social benefit programmes. Regional social programmes for providing assistance in kind fall outside the scope of the federal social mandate and on average encompass 20% of households. However, the programmes financed out of regional and local budgets alone apply to only 10% of households participating in regional programmes, while the remaining 10% receive assistance from the enterprises where the family members work, charitable 7 Types of money income for which the true source cannot be reliably identified. 13

14 organisations, various communities, the Church, and other religious organisations, public and political associations, political parties and other sources. Analysis of the composition of benefit programme participants from the sociodemographic point of view indicates that the maximum amount of federal benefits is received by families of pensioners. The federal benefits system embraces 85% of nonworking pensioners, 80% of single pensioners and 86% of married couples on pensions, with about 50% of the households consisting of two pensioners enjoying four or more types of benefits. This is because, according to effective legislation, the right to benefits is enjoyed, in the main, by elderly people (the average age of beneficiaries being 62 years), since it is they who have given particular service to the state or have health problems affecting their way of life. In families that include pensioners, the provision of social benefits is, as a rule, much greater than in young and middle-aged families. Thus, families with heavier child dependency and therefore facing a higher risk of poverty remain virtually without government support. According to NOBUS data, 80% of single-parent families with children and over 60% of families with many children are not covered by the system of social benefits. Regional programmes to a considerable extent focus on supporting families with children. The system of regional social support covers 18% of all families with children and only 8% of families without children. Most often, the participants are large families (26%), married couples with 2 children (19.1%) and single-parent families with children (18.4%). However, regional programmes are not specially focused on any particular family groups. Here we have a striving to implement the following model for organising social programmes: the main thing is not the amount of aid, but the number of participants, and the more the participants, the better. Thus, neither federal nor regional programmes regard poor households as a priority group. The distribution of financial resources, the scale of household coverage and the level of concentration of individual benefits in a household all indicate that the non-poor remain the most active recipients of benefits in cash and in kind. Consequently, these social programmes do not make any tangible contribution to reducing poverty, and their higher efficiency within the framework of poverty reduction policy would be possible only if the practice of determining participants by category is given up and the procedure for means testing is introduced, on the condition that those placed in the category of poor enjoy priority access Poverty in Russia: definition, measurement, dynamics of level and depth In Russia, those with incomes below the poverty line are officially viewed as poor. Russia was the first CIS country to officially introduce the procedure for poverty line assessment based on subsistence minimum calculation after the start of market reforms in In the interim 14 years ( ), the procedure for calculating the subsistence minimum was changed twice. From 1992 to 1999, it was determined by a regulatory-statistical method, according to which the food basket cost was assessed based on the minimum consumption standards for protein, fat, carbohydrates, minerals 14

15 and vitamins. The cost of the non-foodstuffs was calculated on the basis of the expenditure patterns of the poorest quintile. Since 2000, the subsistence minimum has been determined by a method of standards, meaning that both the food and non-food parts of the minimum basket are assessed on the basis of minimum consumption standards. It should be noted that each of the RF constituent entities had its own subsistence minimum determined for it. Differences in regional subsistence minimum levels are 3.5 to 4-fold. Since the population s consumption is differentiated significantly depending on its sociodemographic characteristics and living conditions, the subsistence minimum has been calculated not only per capita of the population or per household, but also separately for children, pensioners and able-bodied people. Calculations of the subsistence minimum for Russia as a whole have been made according to the new methodology since the 1st quarter of 2000 according to the main sociodemographic groups of the population and per capita 8. For the purpose of producing comparable dynamic series for the subsistence minimum, the indicators for 1999 and 1998 were recalculated retrospectively according the methodology in place since The results of these assessments are given in Table 1.8. They show that the new subsistence minimum is approximately 15% dearer. At the same time, the subsistence minimum for pensioners calculated by the 2000 method has increased by about 25%, that for children by 20%, and that for the able-bodied population by roughly 12%. Table 1.8. Subsistence minimum by sociodemographic group, Total Including by sociodemographic group population able-bodied population pensioners children (567) 555 (616) (567) (1008) 1003 (1089) (1008) Source: Proposals for Poverty Reduction Strategy, M., ILO, 2002, p The minimum food baskets were also developed by the Institute of Nutrition of the Russian Academy of Medical Sciences (RAMS) in consideration of recommendations made by the World Health Organisation (WHO). The subsistence minimum dynamics for the last three years are given in Table 1.9. Table 1.9. Subsistence minimum in (per capita) by sociodemographic group, roubles per month Total population Including by sociodemographic group able-bodied population pensioners children 2000 I quarter II quarter III quarter Resolution No. 36/34 of the RF Ministry of Labour and Goskomstat of Russia, dated 28 April

16 Total population Including by sociodemographic group able-bodied population pensioners children IV quarter Year I quarter II quarter III quarter IV quarter Year I quarter II quarter III quarter IV quarter Year I quarter II quarter III quarter IV quarter Year Source: Russia in Figures. 2004, Concise Statistical Digest/Federal Government Statistics Service, M., The composition and structure of the current subsistence minimum were set by Federal Law No. 134-FZ of 24 October 1997 on the Subsistence Minimum in the Russian Federation (as amended on 27 May 2000). The law lays down two key concepts: subsistence minimum and consumer goods basket. The subsistence minimum is defined as the cost of the consumer goods basket, plus mandatory payments and levies. In its turn, the consumer goods basket is defined as the minimum package of foodstuffs, plus non-food goods and services, necessary to maintain a person s health and life. The Federal law establishes that: The size of the subsistence minimum per capita and by the main sociodemographic groups of the population as a whole for the Federation shall be established by the Government of the Russian Federation, and in the constituent entities of the Russian Federation by the executive agencies of the constituent entities of the Russian Federation. The size of the subsistence minimum set for the Russian Federation in general shall be the basis for establishing the size of the minimum wage and the minimum old age pension, as well as for determining the size of stipends, allowances and other social benefits. The subsistence minimum shall also be taken into consideration in the rendering of government social assistance. In Russia, officially published data on the poverty level are based on the poor population index, determined under Russian conditions as the share of the population 16

17 with incomes below the subsistence minimum. Figure 1.1 presents the dynamics of this share of the population for a 12-year period. As we can see, this indicator fluctuated substantially. After the 1992 liberalisation of prices the poor amounted for a third of the Russian population, then the figure declined steadily until The biggest drop in the poverty level occurred in 1994, but the reasons for this change should not be sought in the specifics of socioeconomic policy or significant institutional changes. The main factor behind this was the changes introduced into by the FGSS into the methods used for constructing the income distribution series. Poverty level, % Money income shortfall, % Poverty level, percentage of total population Money income shortfall, percentage of total money incomes of the population Figure 1.1. Official estimates of poverty level and depth based on macroeconomic data Sources: 1. Russia in Figures. 2004, Concise Statistical Digest/Federal Government Statistics Service, M., 2004, p The Social Position and Standard of Living of the Population in Russia: Statistical Digest/Goskomstat of Russia, М., 2001, p The Social Position and Standard of Living of the Population in Russia: Statistical Digest/Goskomstat of Russia, М., 1997, p. 9. In 1995, a certain rise in the rate of poverty was observed, which was linked to the financial crisis, followed by a tendency for poverty to decline, lasting right through until the August crisis of After that crisis, the consequences of which were demonstrated most clearly in 1999, we observe a steady fall in the level of poverty, beginning as early as It was in this year, however, that Russia transferred to a higher subsistence minimum, so the growth of the population s real incomes was not reflected in poor population dynamics. Can the poor population index be considered a fair poverty measurement unit? In certain cases, yes, it can. It is easy to understand and use in practice. For assessing the overall progress in poverty reduction, it is the most suitable instrument for analysis. In some cases, however, including poverty and social impact analysis, use of this indicator 17

18 does not allow the effects to be evaluated. Such is the case, for instance, when a programme is targeted on the poorest groups and, as a result of its impact, the recipients of social assistance remain in the poor category, but receive substantially higher incomes. In such a case, it is income shortfall that provides for a more precise assessment of these dynamics. This poverty indicator can be calculated in a variety of ways. Official Russian statistics define it as the amount of income that would need to be paid to all poor people to bring them out of poverty, as a percentage of the volume of income of the total population. The dynamics of this indicator are also given in Figure 1.1., from which it can be seen, in particular, that in 2003, 2.6% of the total income would have had to be redistributed in favour of the poor in order to eliminate poverty. Given the rise in the incomes of the middle- and high-income population strata, this indicator is likely to fall even if the depth of poverty increases. In particular, if the incomes of the poor remain unchanged, but there is an overall income growth, this income shortfall will shrink. The most informative is the per capita income shortfall, expressed as a percentage of the subsistence minimum. Fundamental conclusions can be drawn on the basis of analysis of a distribution series for income shortfall. This indicator is not among those published officially, so here we make use of NOBUS data. Let us note that poverty assessments, based on this data source, do not coincide with those published officially (Table 1.10). These disparities result from use of different data for measuring income poverty (actual income, spending or disposable resources 9 ) and methods for gathering them (macroeconomic data and household surveys). In particular, NOBUS data give higher poverty rates than the official assessments, the calculation of which includes a number of methodological errors. While leaving a discussion of approaches to determining and measuring poverty outside the scope of this report, let us note that, in this case, 26.0% of households, or 33.4% of the population, are classified as poor. Data sources Table poverty level, % Income (expenses) Households Disposable resources Income (expenses) Population Disposable resources Based on distribution pattern series by expenses* Based on HBS data expenses** Based on NOBUS data * Official poverty level assessment ** HBS Household budget surveys, performed quarterly by Rosstat Now let us turn to the distribution of income shortfall calculated on the basis of NOBUS data, measured as a percentage of the subsistence minimum and indicating how much extra would have to be paid to the poor to bring their incomes up to the subsistence minimum, i.e., so that they were no longer poor. The average income shortfall of all poor people is 22.5% of the subsistence minimum, while the average level of the disposable resources shortfall is equal to 10%. 9 Disposable resources include both money and other incomes. 18

19 Distribution of the total volume of these indicators (Figure 1.2) gives grounds for asserting that poverty in Russia is not deep. For the majority of poor families, the disposable resources shortfall is no more than 40% of the subsistence minimum, and only among 8% of households does it exceed 60% of the subsistence minimum. These assessments prompt the conclusion that a significant proportion of poor households in Russia are concentrated around the poverty line and only for a tenth of them does poverty mean a virtual lack of the source of livelihood. The fact that poverty is not deep should be regarded as a positive result from the point of view of the dynamics of the standard of living, and concentration of the poor predominantly at the poverty line is also indicative of a high level of temporary poverty. For policy purposes, this makes it possible to determine two fundamentally different lines of targeted activities. First, using programmes designed to support those at the poverty line, a substantial reduction could be achieved in the poor population at minimum costs. Second, some 8% of poor families will remain so even if a substantial part of income is redistributed in their favour; hence the need for special poverty reduction programmes. 39,7 30,4 32,6 26,3 22,5 19,2 13,7 7,3 7,1 1,2 up to 20% SM up to 20-40% SM up to 40-60% SM up to 60-80% SM up to % SM money income disposable resources (maximum for incomes and expenses) Figure 1.2. Distribution of poor households by income shortfall level, as % of the subsistence minimum (SM) Source: calculated from NOBUS data for the 2nd quarter of Poverty in Russia in the context of the Millennium Development Goals A cut in extreme poverty is determined as the priority goal in the sphere of development, formulated in the Millennium Declaration. We will confine ourselves to considering the given issue in the report, since certain indicators of the Millennium Development Goals affect children directly. As already noted, assessment of poverty 19

20 presupposes answers to two questions: how many people or households may be categorised as poor (proportion of the poor) and how poor are they (resources shortages of the poor)? The tasks countries need to resolve in implementing the Millennium Declaration and indicators of progress in achieving Goal 1 of the MDG, also follow the given principle: Task 1. By 2015, halve the proportion of the population in extreme poverty. In order to evaluate measures geared to achieving this goal, the use of the following indicators is proposed: dynamics of the population share with less than 1 dollar a day for current consumption 10 ; dynamics of the resource shortfall of the poor, using a poverty line at the level of 1 dollar a day. dynamics of the consumption share of the poorest 20% in total consumption. Task 2. By 2015, halve the share of the population suffering from hunger. Progress in this field will be measured by the following indicators: incidence of low weight among children up to the age of 5 years; share of the population with a calorie consumption below the minimum. The indicators determining progress in resolving the first of these tasks will, under Russian conditions, measure success of quite a broad scope. The indicators of the share and shortage of resources shortfalls of the population with incomes less than 1 dollar a day are oriented on evaluating the results of improving the material well-being of the poorest strata of the population or those in abject poverty. It should be noted that there are no data sources making it possible to measure these indicators for Russia, since the Russian Statistics Agency assesses poverty proceeding from the official subsistence minimum. The method used by the World Bank to measure extremely low living standards is based on a poverty line corresponding to expenditures of less than 2.15 dollars a day, since cold natural and climatic conditions necessitate additional outlays on heating, winter clothing and foodstuffs 11. Table Poverty level in countries with different levels of economic development Country Year Share of the population below the poverty line, % Year Share of those living on less than $1 ($2.15) a day, % Russia ($2.15) Ukraine Poland Kyrgyzia China Dollars are recalculated into roubles at the purchasing power parity. In 2000, the purchasing power parity (rouble/us dollar) was roubles to the dollar, and in roubles to the dollar. 11 Reforms to the Benefit of Each and Everyone: Poverty and Inequality in the Countries of Europe and Central Asia. World Bank, Washington, 2001, p

21 Brazil Nigeria USA India Source: The Social Position and Standard of Living of the Population in Russia. 2003: Statistical Collection/Goskomstat of Russia, М., 2003, p According to the World Bank methodology (Table 1.11), in 2000, 6.1% of the population of Russia were in abject poverty (below the poverty line of 2.15 dollars a day). The NOBUS data at our disposal for the 2nd quarter of 2003 allow expert assessments to be made of the Russian level of poverty applying poverty lines of 1 and 2.5 dollars a day. The results obtained show that, in 2003, 1% of the population of Russia was in abject poverty according to the standards of the Millennium Declaration (a poverty line of 1 dollar a day) and 5% fell into this category using the World Bank methodology (2.15 dollars a day). It is notable from Table 1.11 that, if the official Russian poverty line is applied (the cost of the minimum basket of consumer goods), the number of poor people is much higher than the estimates given above. Consequently, in comparison with world standards for determining absolute poverty, the national Russian poverty line presupposes a higher level of minimum consumption. The indicator of the consumption share of the poorest quintile in the total volume of consumption for countries with a low level of economic development is also oriented on measuring extreme poverty, however, under Russian conditions it approximates to the estimate of the dynamics of official poverty, since, in 2003, 20.6% of the population were recognised as poor with respect to the national poverty line. Overall, it makes it possible to measure the dynamics of both poverty and inequality: the lower the share of resources among the 20% of the poorest people, the greater the poverty and inequality. 21

22 Figure 1.3 Dynamics of the share of the money incomes of the most poor 20% in total incomes, , % Source: Russian Statistical Yearbook. 2004: Statistical Collection/Rosstat, М., 2004, pp The data presented in figure 1.3 testify that, at the time when the country was descending into economic crisis and market transformations were taking place, in the early 1990s, a substantial redistribution of resources was observed in Russia in favour of the middle and prosperous population strata. Until 2000, when we consider that the economic growth phase set in, this indicator fluctuated between 5.8 and 6.1%, but subsequently stabilised at a level of 5.6%. This is indicative that the poor did not receive priority access to the results of the economic growth, so this evidently conceals a certain potential for reducing poverty. The characteristics of food energy values and the extent to which younger children are under weight are the indicators used most frequently to identify malnutrition or hunger. At the same time, most researchers see low weight as the most precise sign of hunger, since individual calorie requirements may differ considerably, depending on the specifics of the metabolism and physical load. Data on the level of calorie consumption are published regularly. Their comparison with the standards set by the minimum basket of consumer goods helps to estimate the share of the population consuming fewer than the minimum number of calories. Table Food energy value of the diet by 10-% income groups of the population in 2003, average per household member Decile group Energy value Protein content Fat content Carbohydrate content ccal % of norm grams % of norm grams % of norm grams % of norm

23 Household average Consumption norm in the subsistence minimum (per capita average) Source: The Social Status and Standard of Living of the Population. 2003: Statistical Collection/Goskomstat of Russia, М., 2004, p Corresponding calculations for 2003 are given in Table If all cases of daily calorie consumption below the standards envisaged by the Russian subsistence minimum are taken as indicators of extreme poverty, then the scale of the given phenomenon in Russia would run close to 40%, while the protein malnutrition problem would affect 60% of the population. In order to agree with this result, confidence in the reliability of the initial data would be needed, as well as of the methodology used for assessing the number of calories consumed. Official statistical assessments of the energy values of the foodstuffs consumed are based on establishing which foodstuffs were purchased and then recalculating them in terms of actual consumption. This method has major limitations, engendering underestimation of real consumption (food consumed outside the home, incorrect recalculation of foodstuffs into calorie content, and so on). It is difficult to estimate quantitatively the level of errors incurred in the course of such recalculations. The only thing to do seems to be to compare the results obtained with data produced by other studies by the Institute of Nutrition of the RAMS 12, which testify that the method used in Russia for estimating the energy value of the diet tends to underestimate calories by about 20%. Consequently, the average calorie consumption level in 2003 corresponded to 2684 calories and it should be noted at this point that Russia does not belong to a category of countries where foodstuffs are in short supply 13. Comparison of the characteristics of the energy value of the actual diet, adjusted for a share of consumption not taken into account, with the standards envisaged by the minimum basket of consumer goods testifies to incidence of this form of poverty among 10-15% of the population of Russia. At the same time, it should be stressed that the standard calorie consumption envisaged by the Russian minimum basket of consumer goods is considerably higher than the number of calories required for the basal metabolism, which is judged to be about 1500 calories 14. With respect to hunger and signs of calorie deficiency, the focus is on the given daily standard for energy 12 A.K. Baturin,V.A. Tutelian, L.N. Ovcharova et al. Diet and health in poor families. Ministry for Labour and Social Development, etc. M.: Prosveshcheniye, p The Food and Agricultural Organisation (FAO) uses the indicator of the food energy value for dividing countries into categories with sufficient or insufficient access to foodstuffs for the population, the criterion being 2,400 kcal a day per person. 14 A.K. Baturin, M. Lokshin. A study of dietary components in the analysis of poverty and justification of poverty limits. Moscow, 2003, World Bank Report, p

24 consumption. The data we have allow us to suppose that this form of extreme poverty affects 1-3% of the population of Russia, but let us stress again that the official statistics do not trace such forms of poverty. Overall, analysis of the diet structure of Russian families prompts the conclusion that it does not correspond to today s principles of a healthy diet, this structure being characterised by a low level of consumption of fruit and vegetables, milk and dairy products and giving preference to animal fats, which creates the conditions for the development of heart and circulatory diseases, obesity, diabetes and other metabolic disorders. The incidence of low weight among children under the age of 5 may be disclosed only as a result of anthropometric studies, characterising the nutritional status of the population of Russia. Calculation of children s z-scores of height and body mass help disclose stunting or reduced body mass, which testify (at values of less than 2) to chronic or acute malnutrition, respectively. In this case, the only source of information is specially organised research by the Institute of Nutrition 15, showing that there do exist signs of acute and chronic malnutrition in Russia and that they are concentrated in families with low incomes. Stunting and low weight, testifying to a chronic shortage of food, are encountered most frequently among younger children (with respect to underweight) and among children between the ages of 7 to 10 years (more often stunting). Even though Russia differs little from other developed countries in terms of the incidence of shortages of food among children, and the situation is much better according to this indicator than in the developing countries 16, the very fact of the existence of such forms of extreme poverty provides sufficient grounds for monitoring this process and elaborating measures designed to eliminate food shortages among children. Thus, to conclude the review of the dynamics of the standard of living and poverty indicators in Russia, let us note the following: 1. Over the last 12 years of market reforms, a return to the pre-reform standard of living indicators has not yet been attained, although the last four years have seen a substantial growth of the population s real incomes. 2. The reforms implemented have been accompanied by a significant growth in inequality in income distribution, so the rise in the incomes of the prosperous population strata has, to a considerable extent, been at the expense of a redistribution of resources from the poor to the rich. 3. The fall in real incomes and rise in inequality has prompted a growth in the numbers of the poor population. 4. In spite of the fact that over 50% of Russian households are covered by various social assistance programmes, the majority of social programmes are not targeted on supporting the poor population strata. 15 A.K. Baturin,V.A. Tutelian, L.N. Ovcharova et al. Diet and health in poor families. Ministry for Labour and Social Development, etc. M.: Prosveshcheniye, p The World Bank Group. Health, Nutrition & Population. Washington, D.C., 1997, p

25 5. The scale of extreme poverty, measured in accordance with criteria determined for the purposes of the Millennium Development Goals, is estimated at 1-5% of the total population. The numbers in this group may be swollen by deviant strata. 25

26 2. Poverty profile: children have the highest risk of poverty in Russia 2.1. The main characteristics of the poverty level and profile It was already noted in Chapter 1 of the report that, according to official publications, in % of the population were classed as poor. We have also already looked in detail at one of the main problems involved in analysing Russian poverty, namely that the two official data sources (research into household budgets and the model series of income distribution) give different estimates of the scale of poverty: according to the study of households (NOBUS and HBS), the scale of poverty is considerably higher (Table 1.10). Since, in order to calculate the indicators of the poverty profile, direct access is needed to initial data, the analysis provided in this chapter will rely on the NOBUS data, as HBS initial data are not accessible to the investigator. According to the data in Table 1.10, 26% of households, in which 32.3% of the population live, are classed as poor. Which population groups are at increased risk of poverty and which constitute the majority of the poor population? To answer this question, we need to consider directly the indicators of the level, depth and risk of poverty for individual sociodemographic groups of families. These indicators will be considered in order to make two assessments of the welfare level: money incomes, counting only money received, and disposable resources, which include, apart from money incomes, all types of nonmonetary receipts (foodstuffs from household subsidiary plots, subsidies and benefits received in kind, etc.). In its most general form, the existing poverty profile in Russia allows three categories of household to be identified (Table ). 1. The biggest group in the poor population consists of families with children. In spite of the fact that families with children constitute 37% of the total number of households, they account for 50-60% of the total number of poor families, depending on the welfare indicator used. They also account for 75-80% of the income shortfall, which testifies to deep poverty of this type of family. More than half such families are distinguished by a favourable demographic structure (married couples with 2 or more children and other relatives), so their poverty is not linked to a high level of child dependence. If we orient ourselves on money incomes alone, then about 80% of all families with children fall into the poor category. If total disposable resources are taken into account, the indicator drops to 52%, but in this case, too, we observe an extremely high risk of poverty. 13/F:\PROGRAMMES Folders\Poverty report and meeting\edited versions_for printing\eng child poverty.doc 26

27 Table 2.1. Risk and depth of poverty by sociodemographic group All families, % Poor households Money incomes Disposable resources Income Income shortfall shortfall Risk of falling into the poor group (% of group size) (% of subsistence minimum) Risk of falling into the poor group (% of group size) (% of subsistence minimum) Families with children: Married couple with 1 child Married couple with 1 child and other relatives Married couple with 2 children Married couple with 2 children and other relatives Married couple with 3 or more children Married couple with 3 or more children and other relatives Mothers (fathers) with children Mothers (fathers) with children and other relatives Families without children: Households of pensioners Households of able-bodied people Average for all families Source: calculated from NOBUS data for the 2nd quarter of Families of pensioners account for between 9% (disposable resources) and 18% (incomes) of the total number of the poor and from 1.7% (disposable resources) to 3.3% (incomes) of the resource shortfall. This result indicates that families of pensioners not only do not constitute the majority of poor ones, but that they are not distinguished by deep poverty either. The risk and depth of poverty for this population group falls sharply when disposable resources are taken into consideration, this being a consequence of the fact that older people enjoy priority access to non-monetary social transfers. 3. Families of able-bodied people without children have less risk of poverty than families with children, but fall into the poor category more often than pensioners. These proportions are characteristic of the indicators of both income and resource shortfall. The ratio of individual demographic groups of households in terms of standard of living and poverty, as established by the NOBUS research data for the 2nd quarter of 2003, have been relatively stable for the last 10 years. It may thus be concluded that there is a predominantly child aspect to poverty in Russia today, with respect to both the depth of the poverty suffered by traditional risk groups and to inclusion among poor families of those that are quite favourable in demographic terms. Objective reality is such that the birth of a second child in a family means, under current economic conditions, orientation on consumption patterns of the poor. 27

28 Table 2.2. Sociodemographic structure of poor households Demographic structure of households surveyed, % Demographic structure of poor households Money income Share among total poor, % Share of total income shortfall, % Disposable resources Share among total poor, % Share of total shortfall of disposable resources, % Families with children: Married couple with 1 child Married couple with 1 child and other relatives Married couple with 2 children Married couple with 2 children and other relatives Married couple with 3 or more children Married couple with 3 or more children and other relatives Mothers (fathers) with children Mothers (fathers) with children and other relatives Families without children: Households of pensioners Households of able-bodied people All families Source: calculated from NOBUS data for the 2nd quarter of Poverty profile of families with children Let us analyse in more detail the poverty profile of families with children (Table ). Households with children are not a homogeneous group and, in terms of their poverty characteristics and reasons for poverty, can be divided into the category of traditionally poor families (large and single parent families) and new poor families, arising as a consequence of the specifics of the transitional economy (families with 1 2 children). Married couples with 1 child, living separately or together with adult relatives. These are families with a favourable demographic composition, where there are at least 2 able-bodied adults per child. This is the most numerous group of families with children: in the overall structure of households, they account for about 17%, and among families with children for over 45%. Since, theoretically, owing to the low child component, married couples with 1 child should not end up in poverty, the main reasons for poverty among families of this type should be sought in the characteristics of the employment of the adult family members (low wages of those who work and unemployment of the able-bodied). 28

29 Families with a favourable demographic composition constitute about 21% of households with resources below the subsistence minimum and account for 23% of the total of deficient disposable resources of the poor. They are distinguished by a relatively high average poverty risk and income shortfall: for couples with 1 child, these values are, respectively, 30% and 8%. In the presence of other relatives in a family with 1 child (for example, children over the age of 18 years or grandparents), the risk of poverty rises to 39%, while the relative income shortfall to almost 11%. Our calculations also showed that, among married couples with 1 child, young families are distinguished by a higher poverty risk, the birth of the first child reducing their material welfare: the share of poor families rises by 40% in money income terms and by 50% in disposable resource terms (figure 2.1) Poor in terms of money incomes Poor in terms of disposable resources All families Families less than 5 years old, without children Families less than 5 years old, with a child under the age of 3 Figure 2.1 Risk of young families falling into poverty, % Source: calculated from NOBUS data for the 2nd quarter of The problems of the higher risk of poverty among young families following the birth of a child are primarily associated with the dual burden on the working father: the birth of the child and the mother s withdrawal from active professional work, at least for the 18 months of official maternity leave. The size of the allowance for childcare, which also depends on the minimum wage, cannot compensate for the absence of the mother s wage in the family budget. At the same time, according to our estimates, this natural process of impoverishment of families on the birth of a child is less acute in Russia today than, for example, in the late 1980s, when the analogous drop was by 60%. This testifies that, when planning to have a baby, young families are increasingly relying on their own material possibilities. During the official period of postnatal childcare leave, women try to find work that would be compatible with the need to care for a small child work at home or for only a few hours a day. In addition, compared to 29

30 the end of the 1980s, young men are more often taking advantage of the opportunity to earn extra and seek more highly-paid jobs. Married couples with 2 children, living separately or together with other relatives. This category of families has an average of 1 child per able-bodied adult, so the main reasons for poverty in such families are connected with the labour market (low wages of those in work and unemployment of the able-bodied). The share of households with 2 children among all families with children is 22%. Moreover, while they constitute only 8% in the overall structure of households, among the poor, with respect to disposable resources, the figure is twice as high (15.4%), and in the distribution of the total disposable resource shortfall their share trebles (to 22.4%). The existence of other relatives in a family with 2 children increases the poverty risk from 49 to 57% and the average income shortfall level from 16 to 18%. Married couples with 3 or more children, living separately or with other relatives. Large families are a traditionally vulnerable category of the group of families with an high dependency load, where there is only 1 able-bodied adult per child or several children. Here the simultaneous impact is observed of several poverty factors. Large families become poor not only as a result of the large number of dependents in them, but also because of their vulnerable position on the labour market. A large number of children in the family often means limited possibilities for employment of the mother, which, in turn, exacerbates the material position of such a family. Special studies testify that, in 40% of such families, the mothers do not work or have jobs that do not require qualifications and are consequently low-paid. This is not a numerous group: the share of large families among all families with children constitutes 4% and only 1.5% of the total structure of households. For this reason, they account for only 4% and 10%, respectively, in the poverty profile and disposable resource shortfall. In terms of the average risk of falling into poverty, however, this is the most vulnerable group among families with children, since 72% of large families have disposable resources below the subsistence minimum and, in terms of money incomes, there is a 90-95% probability of them being impoverished. The depth of the poverty suffered by families with 3 or more children is also maximal. Their average income shortfall is 29-32%, which is 1.7 times higher than the same indicator for all households with children. Single-parent families with children, living separately or with other relatives. These families are also among those with an high dependency load, since the second parent is missing and, consequently, there may be 1 or more children for every ablebodied adult. Like large families, they therefore suffer the simultaneous impact of two poverty factors a heavy burden of dependents and a vulnerable position on the labour market. Single-parent families are a relatively small group among all families with children (29%) and in the overall structure of Russian households (10.5%). Their share in the poverty profile in terms of disposable resources is equal to 20% and in terms of the shortfall of disposable resources, the figure is virtually the same (22.6%). The average 30

31 disposable resource poverty risk for single-parent families is 49-50%. Thus, the probability of them finding themselves in poverty is less than that for large families and even for families with 2 children. In terms of the depth of poverty, single-parent families are comparable with the latter (the average disposable resource shortfall is about 16-17% of the subsistence minimum) The poverty profile according to absolute and relative criteria Tables 2.3 and 2.4 present the poverty profile simultaneously for the absolute and relative measurements of poverty. As the criteria for relative poverty, we used inclusion in the third, second and first decile groups with the lowest level of disposable resources; as those for absolute poverty inclusion in the group with per capita disposable resources below the subsistence minimum, below half the subsistence minimum, below 40% of the subsistence minimum, below 30% of the subsistence minimum and below 20% of the subsistence minimum. Let us note that the poverty line at the level of 20% and 30% of the subsistence minimum is the line of extreme poverty. Analysis of poverty at the multiple poverty lines indicates that families with children are concentrated among the extremely poor. Concerning families with resources amounting to 20-30% of the subsistence minimum, which include 3-5% of the total population, these families lack the resources for even the most primitive diet and this is where malnutrition is encountered % of such families include children. In absolute terms, the biggest group among the extremely poor consists mainly of big rural families. Table 2.3. Sociodemographic structure of the poor by absolute and relative poverty criteria Families with children: Married couple with 1 child Married couple with 1 child and other relatives Married couple with 2 children Married couple with 2 children and other All surveyed households 3 decile Decile groups with the lowest levels of disposable resources 2 decile 1 decile Ratio of disposable resources to the subsistence minimum below 1 subsistence minimum 31 below 50% of the subsistence minimum below 40% of the subsistence minimum below 30% of the subsistence minimum below 20% of the subsistence minimum

32 relatives Married couple with 3 or more children Married couple with 3 or more children and other relatives Mothers (fathers) with children Mothers (fathers) with children and other relatives Families without children: Households of pensioners Households of ablebodied people Total Source: calculated from NOBUS data for the 2nd quarter of * Per capita disposable resources of households adjusted for the ratio of the all-russia and regional subsistence minimum. The most fortunate group among families with children consists of married couples with 1 child: few of them fall into the first three decile groups. As the availability of resources compared with the subsistence minimum decreases, their share drops by half for nuclear families and two-thirds for complex families. A rise in the proportion of children in a household increases their level of representation both among the poor and among the extremely poor. The share of families with 2 children in the 1st decile group is 2.2 times greater than their number in the sample. A marked rise in the proportion of these families occurs in the groups with resources below 50 30% of the subsistence minimum. 32

33 Families with children: Married couple with 1 child Married couple with 1 child and other relatives Married couple with 2 children Married couple with 2 children and other relatives Married couple with 3 or more children Married couple with 3 or more children and other relatives Mothers (fathers) with children Mothers (fathers) with children and other relatives Families without Table 2.4. Risks for sociodemographic groups of falling into poverty by absolute and relative poverty criteria All surveyed households 3 decile Decile groups with the lowest levels of disposable resources 2 decile 1 decile Ratio of disposable resources to the subsistence minimum below 1 subsistence minimum 33 below 50% of the subsistence minimum below 40% of the subsistence minimum below 30% of the subsistence minimum below 20% of the subsistence minimum children: Households of pensioners Households of ablebodied people Average Source: calculated from NOBUS data for the 2nd quarter of * Per capita disposable resources of households adjusted for the ratio of the all-russia and regional subsistence minimum.

34 The most unfortunate categories are families with 3 or more children and single-parent families with children. Large families account for an insignificant proportion in the overall structure, but their share in the 1st decile group goes up almost 5-fold and that in the group with resources below the subsistence minimum 3-fold. The share of singleparent families in the 1st decile group and the group with resources below the subsistence minimum is virtually double that in the sample. In total, these two groups account for 40% of all the poor in the group with resources below 20% of the subsistence minimum. The representation of families without children drops between the 3rd and 1st deciles. This trend can be traced particularly clearly using the example of households of pensioners. Proceeding to absolute poverty lines, there is a significant drop in the proportion of families of pensioners in the group with resources below 50% of the subsistence minimum. Pensioners households are virtually absent from groups with even lower levels of resources, but a transition to less harsh absolute poverty lines sees an increase in the number of single people of working age in the structure of poor households. The share of this group among the extremely poor (with resources below 20% of the subsistence minimum) is four times greater than among households with resources below the subsistence minimum. This last group consists mainly of marginals men living in rural areas, among whom 50% are out of work and over 50% consume alcohol several times a week or more often Poverty among families with a favourable demographic situation The extremely unfavourable standard of living dynamics over the last 10 years have had a detrimental effect not only on groups with a traditionally higher poverty risk, but also on families with a favourable demographic composition complete families with 1-2 children. This category of households accounts for a large share in the structure of poor families, although, as we have already noted, in terms of poverty level and, especially, depth of poverty, they are in a better position than single-parent or large families. What is behind the poverty experienced by this category of household? The results of our analysis show that their poverty is caused by two main factors: а) a high proportion of people earning less than the subsistence minimum; b) unemployment among ablebodied household members. Let us look at this issue in more detail. In the first stage of our analysis, we try to assess the scope of the given phenomena (Table 2.5) among all households, irrespective of their material position. The indubitable leader here is low wages. The existence in the family of able-bodied people who neither work nor study but are seeking work is a quite widespread phenomenon. It should be noted, however, that the number of households including non-working members who are not seeking work is substantially higher. Consequently, lack of a job for an able-bodied person is not only a result of deformations on the labour market, but also of the population s economic behaviour strategies. The majority of unemployed adults have no intention of working, 34

35 so the creation of new jobs would not solve the problem of these people s incomes, since they have lost their connection with the labour market. Table 2.5. Incidence of factors accompanying poverty on the labour market Households with members of working age who are not working, studying or on holiday and are seeking work Households with members of working age who are not working, studying or on holiday and are not seeking work Households with working members receiving wages below the subsistence minimum (if the worker has a 0 salary, he is included in this group) Source: calculated from NOBUS data for the 2nd quarter of Share of households of a given type, % At the same time, non-working adults may concentrate among highly prosperous households, when one member of the family being without a job might be the result of a rational role division within the family. In order to understand how poverty results from lack of employment and low wages, let us break down these data into decile groups in terms of disposable resources (figure 2.2) Decile groups of households by disposable resources Households with family members of working age who are not working, studying or on holiday and are seeking work Households with family members of working age who are not working, studying or on holiday and are not seeking work Households with family members receiving salaries below the survival minimum (if the wage is 0, the worker is included in this group) Figure 2.2 Incidence of factors limiting opportunities to work and earn by decile group, % of the size of the decile group Source: calculated from NOBUS data for the 2nd quarter of The results of the calculations show that the first decile group has the most restricted access to the labour market. The ranging of factors by significance corresponds to the 35

36 average distribution for Russia, but the scope of all the problems covered is much broader: half the households in the given decile group include workers with wages below the subsistence minimum; one in three households includes able-bodied people who are neither working nor seeking work and 12.7% are households in which those without work are looking for a job. In the context of socio-economic policy measures, this conclusion indicates that measures geared to reducing poverty must be linked to a rise in the minimum wage, otherwise the overall concept of the strategy for promoting a reduction in poverty will be illogical and ineffective. It should also be noted that households in which there is at least one working person with a wage below the subsistence minimum are quite widespread in all decile groups: up to the 9th decile group inclusively, they account for no less than 20%. The share of those who are neither working nor job-hunting falls as the level of prosperity rises, but the highest levels are characteristic of the first three decile groups, so poverty is, in many cases, a consequence of able-bodied household members leaving the labour market. On the household level, poverty problems are exacerbated if several poverty factors are concentrated in a single family (figure 2.3). Analysis on this plane demonstrates that poor households are also distinguished by a higher concentration of factors producing poverty with respect to the labour market. In the first decile group, only 23.4% of the families have a low level of resource provision not resulting from interrelations with the labour market. This group is represented by large and single-parent families. In the majority of families, from the economic point of view the low income levels are a consequence of just one factor, i.e., low wages. At the same time, in virtually 20% of the families, a low income of one worker and lack of job for another predetermine poverty of the nuclear family even if there is only one child. In cases when one of the parents earns a low wage and the other is without work and is not job-hunting, this model of economic behaviour is, in principle, a chronic poverty lifestyle. It is worth noting that this type of behaviour is demonstrated by one in five families in the first decile group. The second decile group, in terms of the nature of the household s links with the labour market, is largely similar to the first, although all the negative processes are manifested somewhat less acutely here. In all subsequent decile groups, over half the households are without a worker earning less than the subsistence minimum, while all able-bodied members are either working or studying. 36

37 Decile groups of households by disposable resources Households demonstrating none of the poverty factors Households demonstrating at least poverty factor Households demonstrating 2 factors Households demonstrating all the 3 factors Figure 2.3. Concentration of poverty factors connected with the labour market, by decile group, % of numbers of the poor Source: calculated from NOBUS data for the 2nd quarter of Now let us concentrate on the labour strategies of married couples with children (Table 2.6), starting with married couples with just one child. This sociodemographic type of family is not distinguished by a heavy burden of children, so poverty is connected only with the parents position on the labour market. The data in Table 2.6 prompt the conclusion that, among such families belonging to the first decile income groups (the poorest families), about half are distinguished by full employment of the adult members. In the 3rd to 5th decile groups, the overwhelming majority of such families participate on the labour market to the maximum extent (the poverty line runs at the 5th decile group). Consequently, in 2003, the main reason for poverty consisted of low wages. Concerning an additional burden of dependents, consisting of adult non-working household members, unemployment, along with low wages, constitutes the main social factor behind poverty. In the first decile in terms of income distribution, almost half the households come up against employment problems for the majority of their adult members and only 46% of the households in the first decile group have no adult dependents. Non-working adults are represented quite broadly in the 2nd and 3rd decile income groups. For comparison: in the tenth decile group there are virtually no nonworking members (there are only 6.5% of such families). 37

38 Table 2.6. Characteristics of employment of able-bodied adults belonging to married couples with children, % of the income group Decile income Married couples with 1 child Married couples with 2 or more children group Both parents work 1 or 2 parents do not work Both parents work 1 or 2 parents do not work Source: calculated from NOBUS data for the 2nd quarter of Thus, analysis of the profile of and reasons for poverty shows that families with children are the most widely represented group both among all the poor and the extremely poor. Employment policy and wages are the main regulators of Russian poverty and this is where the reasons should be sought for poverty among children, with low wages being the most significant poverty factor. The system of monthly allowances for children in poor families is not able to impact the level of child poverty at all substantially, since the allowances do not exceed 3% of the child s subsistence minimum. The significance of the given targeted social programme will, in the near future, fall, since the legislative and financial powers with respect to child allowances for poor families have been transferred to the regional level. As a result, depressed territories will lack the resources to finance them. 38

39 3. Non-monetary forms of poverty in Russia as a whole and among families with children 3.1. Non-monetary tangible assets: large families have poor housing conditions and single-parent families have no property Alongside income indicators, the most important indicators of restricted and unequal access to vitally important resources are the level of provision of households with such tangible assets as housing and property, reflecting a long-term connection between family incomes and real consumption opportunities. A description of the system of indicators we use for assessing intangible assets is given in Appendix 2. A household is deemed poor from the housing point of view if it lives in cramped conditions or has no sewage system, heating system or running water. From the property angle, families lacking the consumer durables included in the minimum list of those necessary in accordance with the subsistence minimum are considered poor. These goods include: a television, refrigerator and washing machine poor households prosperous households all households Poor in terms of housing provision Average level of housing provision Housing conditions above average Figure 3.1. Characteristics of housing provision of poor and prosperous households, % Source: calculated on the basis of NOBUS data for the 2nd quarter of An above-average standard of housing is considered to mean conditions under which a family lives in comfortable housing with more living space than the social norm. With 39

40 respect to property, such families are those that possess the main consumer durables from the minimum list, as well as either a dishwasher or a computer or a car. This group also includes those that have liquid assets in the form of a second residence or plot of land. The results of comparing the characteristics of income provision with the parameters of provision with housing and property are presented in figures 3.1 and 3.2 and in Tables of Appendix 2. If we consider households included in the poor group on the basis of the income criterion, it becomes clear that, on the one hand, not all families with low incomes have below standard housing (the two coincide in only 60% of cases), and on the other hand, families that are not poor are quite broadly represented among those with belowstandard housing (40.5%). It should be noted that 12% of the total numbers of poor families (3.3% of the overall number of Russian families) have high quality housing. A similar situation is also characteristic of provision with property. About 40% of poor families possess types of property included in Russia among signs of a high standard of living. At the same time, 20% of prosperous families are without consumer durables included on the minimum required list (television, refrigerator, washing machine) poor households prosperous households all households Poor in terms of property provision Average level of property provision Above average property provision Figure 3.2. Characteristics of property provision of poor and prosperous households, % Source: calculated according to NOBUS data for the 2nd quarter of The results obtained confirm our assumption concerning the need to look at poverty from the angle of a broader range of welfare indicators. It is important to note that such an integrated approach to measuring forms of poverty does not automatically lead to an expansion of the scale of poverty. 40

41 If we consider the share of households with a low level of housing provision, among all families with children it will be somewhat above the sample average, but the difference is not sufficient for us to assert that this group of families has the worst housing conditions (Table 3.1). Large families stand out against the general background, over 70% of them having poor housing standards. Comfortable, sufficiently spacious housing is enjoyed by families with 2 children only half as often as the average for all households (9.8% and 25.8%, respectively). Large families have high standard housing particularly rarely: married couples with 3 or more children, living separately or with other relatives ( %), married couples with 2 children, living together with other relatives (3.2%). Single-parent families and married couples with 1 child more often have comfortable housing of an area no less than the social norm (28.5 and 19%, respectively). The situation with respect to provision with property is different. Families with children are better provided with property than the average sample household: 17.8% of families with children have a low level of property provision, against 21.6% of the population as a whole, and possess assets that are considered in Russia to be a sign of a high standard of living 41.5% of families with children against 33% of all households (Table 3.1). In terms of property provision, the most vulnerable category among families with children consists of single-parent families: 27.6% of these do not have either a television or a refrigerator or a washing machine, that is, consumer durables from the minimum necessary list, and only 18% of them own a second residence or a car or such expensive items as a dishwasher or computer. The highest level of property provision is enjoyed by married couples with 1 child, living together with other relatives. Only 8% of these are without the most essential consumer durables and 56.3% own expensive, non-essential items. From the population distribution angle, these proportions are the same for both urban and rural families (Tables of Appendix 2), but signs of poverty such as limited access to housing and property, with the exception of per capita living space by the square metre, are encountered far more frequently in rural areas: 72.6% of urban families with children and only 10.5% of rural ones live in comfortable housing. 83.2% of urban families with children and 71.9% or rural ones have less than the social norm for living space. 12.6% of urban families with children and 25.9% of rural ones have a low level of property provision. 41

42 Table 3.1. The level of the housing and property potential of Russian families All families Living in comfortable housing* Housing provision criteria Total living space not below the social norm Above average level of housing provision** Low level of housing provision *** Property provision criteria Above Low level average of level of property property provision provision ***** **** Families with children: Married couple with 1 child Married couple with 1 child and other relatives Married couple with 2 children Married couple with 2 children and other relatives Married couple with 3 or more children Married couple with 3 or more children and other relatives Mothers (fathers) with children Mothers (fathers) with children and other relatives Families without children: Households of pensioners Households of able-bodied people All households Source: calculated on the basis of NOBUS data for the 2nd quarter of Overall, in identifying poverty on the basis of an analysis of housing and property provision, no uniquely higher inclination of families with children towards poverty is observed. In particular, pensioners households have less property and in rural areas they live more frequently in housing that lacks amenities. At the same time, traditionally vulnerable categories of families with children large and single-parent families are still at a high risk of joining the poor groups in terms of level of provision with non-monetary tangible assets Population health and accessibility of medical services The health of the population is one of the main indicators of quality of life. It determines the degree of development, civilisation and welfare of society. Comparisons between countries show that the principal characteristics of a nation s state of health and, above all, life expectancy, demonstrate a connection with the size of the per capita national income. There are a multitude of direct and indirect links between health and material welfare. A high standard of living may be counted as one of the chief factors behind good health and, at the same time, only a healthy population is able to work and study intensively and achieve a high level of material welfare. 42

43 Official statistics for the last decade show a deterioration in the health of the Russian population. A rise in incidence for virtually all classes of disease has been observed 17. Over the ten years, there was a deterioration in a number of indicators of the state of health of mother and child. Above all, the high level of maternal and infant mortality and worsened state of health among pregnant women and those giving birth should be noted (Figure 3.3) Anaemia Kidney disease Late onset toxicosis Circulatory diseases Figure 3.3. Dynamics of the health of pregnant women (% of the number of those reaching full term). Russian Federation Source: Russian Statistical Yearbook. Collection of Statistics./Rosstat, M., Strategy for Reducing Poverty in Russia: analysis and recommendations. Moscow. International Labour Organisation p

44 Table 3.2. Visits to the doctor and reasons for not visiting a doctor, % Age groups: and above Poor households in terms of disposable resources Visited the doctor within the last 12 months: Yes No Total If not, why not:** No health problems No required specialist available in the vicinity Difficult to make an appointment with the required specialist Required services are to be paid for and cannot be afforded Other reasons Total Households not poor in terms of disposable resources Visited the doctor within the last 12 months: Yes No Total If not, why not:** No health problems No required specialist available in the vicinity Difficult to make an appointment with the required specialist Required services are to be paid for and cannot be afforded Other reasons Total Source: calculated on the basis of NOBUS data for the 2nd quarter of

45 Table 3.3. Indicators of completion of treatment prescribed for poor and non-poor respondents, % Disposable resources Poor households Non-poor households Yes, completed fully Completed only the part available free of charge Completed in part because of insufficient funds to pay for medicines and treatment Not completed at all, owing to lack of funds to pay for medicines and treatment Not completed for other reasons Yes, completed fully Completed only the part available free of charge Completed in part because of insufficient funds to pay for medicines and treatment Not completed at all, owing to lack of funds to pay for medicines and treatment Not completed for other reasons Age groups (years): and above Source: calculated on the basis of NOBUS data for the 2nd quarter of

46 A fall in the indicators of the population s health is, as a rule, linked to two factors: lifestyle and the way the healthcare system works. The key problem in the Russian healthcare system is the substantial divide between state guarantees concerning the provision of free healthcare services to the population and the finance provided for them. For the individual, this means restricted access to medical services, often resulting from an inability to pay for medical services and medicines or cover transport costs. We have investigated the connection between restricted access to medical services and the level of material security within individual age groups, since the greatest dependence is found between health and age. Analysis of the poverty profile showed that children between the ages of 5 and 16 years have the greatest risk of being impoverished, while pensioners, on the contrary, have the lowest risk, i.e., we might get the opposite trend, with the poorest turning out to be the healthiest. Consideration of the health problem from the angle of indicators of visits to medical institutions demonstrates certain differences between poor and non-poor households (Table 3.2). First, those who are not poor visit medical institutions and ask for medical assistance more frequently, this being a tendency that can be traced in all age groups. The most frequent visitors to the doctor are children under the age of 5 years and people of pensionable age, irrespective of their material status. Second, the reasons for not seeking medical assistance are different for poor and nonpoor people. Among people of working age, the main reason for both poor and nonpoor people not visiting the doctor is the absence of health problems. Within the age groups of years and years, however, there is a sudden increase in the significance of factors connected with the restricted access to healthcare services: There are no specialists of the required type in the vicinity. It is difficult to make an appointment to see the required specialist. Paid services are needed but there is no possibility of paying for them. The significance of these factors rises among older age groups. Among poor people, these restrictions are much more common. In particular, non-poor respondents between the ages of 55 and 60 years who do not visit doctors for the above three reasons account for 15.5% of cases of failure to seek medical assistance, while the figure for poor people is 25.2%. There are virtually no institutional barriers to access to medical assistance for children up to the age of 5 years. Only 3.3% of the respondents in this age group from poor households indicated these factors as reasons for not seeking medical assistance, the figure for poor households being 4.8%. Analysis of data on completion of prescribed treatment indicates that poor people are more restricted in their access to medical care (Table 3.3). Non-poor groups complete a doctor s prescriptions fully more often than poorer people, while poor groups, although in the majority of cases demonstrating the same behaviour, are more inclined to complete only the treatments provided free of charge. This pattern is characteristic of all age groups; moreover, the share of those who complete a course of treatment falls with 46

47 the age of the respondents. Failure to fulfil a doctor s prescriptions is mostly connected with a shortage of funds to pay for them, a fact that is observed among both poor and non-poor respondents. It should be noted that treatment prescribed for children is completed more often than that for all other age groups. The unequal opportunities of the different population groups to take advantage of medical services are even more diversified if considered from the point of view of indicators characterising the population s participation in payment for these services. In Russia, medical services that are paid for legally by the population to the cashiers of medical institutions are called paid medical services. In practice, different quality standards have taken shape for services of a single type, depending whether they are provided to patients free of charge or for a fee. The difference in quality consists in the use of medicines that cost different and, correspondingly, are of differing clinical effectiveness. Indicators of changes in the expenditure of the population and public spending on healthcare in recent years are given in Table 3.4. The share of paid medical services among the total of paid services to the population rose between 1993 and 2001 inclusive, from 1.7% to 4.6%. These impressive dynamics can hardly be explained merely by a growing demand for medical services on the part of high income population strata. Table 3.4. Public spending and private expenditure on healthcare, billion roubles* Public spending on healthcare Contributions to voluntary medical insurance Paid medical services to the population Expenditure of the population on medicaments N/A Source: Russian Statistical Yearbook, M.: Goskomstat of Russia, 2001; Russian Statistical Yearbook, М.: Goskomstat of Russia, * until 1998 in denominated roubles. Table 2.3 of Appendix 1 presents data characterising frequency with which poor and non-poor families take advantage of paid medical services. The first thing to notice is the three-times greater incidence of payment in hospitals than in outpatient facilities. As for the differences between the poor and those who are not poor, they are differentiated between the various age groups. With respect to children up to the age of 5 years, poorer people pay for outpatient healthcare as frequently as more prosperous people do and in hospitals they pay even more frequently than whose who are better off. Non-poor ablebodied people take advantage most frequently of paid outpatient services, which is indicative of their greater material opportunities and greater concern for their health. A similar situation is observed among both poor and non-poor groups with respect to frequency of payment for hospital treatment, though the differences are not manifested so strongly here. 47

48 Table 3.5. Reasons for seeking paid medical services, % Not satisfied with free medical care poor households Free services of doctors of the given profile not available It is difficult to make an appointment to see a free doctor of the required profile Not satisfied with free medical care non-poor households Free services of doctors of the given profile not available It is difficult to make an appointment to see a free doctor of the required profile Age groups (years): and above Source: calculated on the basis of NOBUS data for the 2nd quarter of Analysis of the reasons prompting people to pay for medical services does not confirm the widespread view that the main factor is a desire to receive quality healthcare (Table 3.5), though this is undoubtedly a weighty factor, especially among those who can afford it. With respect to children under the age of 5 years from poor families, the chief motive for them is the impossibility of getting an appointment with a doctor or the absence of the required specialist within the free healthcare system, and only 15.5% connect their visit to a paid medical institution with a desire to receive better quality healthcare. To conclude our overview of the characteristics of poverty, let us note that a variety of forms of manifestation of poverty are encountered in Russia, the key ones being the following: a shortage of means for current consumption; a low level of housing provision; a low level of property provision; restricted access to medical services. This comprehensive view provides a differentiated picture of poverty, allowing us to identify families for which multiple forms are characteristic. Analysis of the indicators of housing and property provision shows that income, housing and property provision are, as yet, only weakly interlinked, since many families became poor only recently and have retained a good level of living conditions. Large families are among those with the poorest living conditions, while single-parent families are distinguished by a low level of material provision. Both the poor and those who are better off encounter problems with respect to access to medical services and medicines. These situations arise far more frequently for poor people, but even more prosperous families encounter such restrictions quite often. Poor 48

49 people are more inclined not to complete treatment prescribed by a doctor because they lack the funds to pay for it. For children up to the age of 5 years, the barriers to taking advantage of medical services and obtaining medicines are substantially lower even in the poorest families. Among all families with children, barriers to obtaining medical services are more significant for multi-generation single-parent families, which account for 11.4% of cases when lack of funds prevents these people from visiting a doctor, while families with children account, on average, for 6.6% (Table 2.4 of Appendix 2). Large families do not complete a prescribed course of treatment in full in 22.2% of cases owing to a lack of funds. This indicator for all families with children is 13%, and that for the population as a whole, it is 11.6%. 49

50 4. Regional measurement of poverty Poverty in such a vast country as Russia is bound to demonstrate a significant territorial differentiation. The reason for this is the extreme heterogeneity of the Russian regions with respect to level of economic development, state of the labour market, sex and age structure of the population, urbanisation development and living conditions. Differences in the level of poverty and the population s incomes are characteristic of any country, being a consequence of territorial disproportions in economic development. Economic growth cannot be instantaneous and take place everywhere all at once: it begins at territorially localised growth centres or areas with the most favourable socioeconomic conditions. A concentration of investments at the growth centres is necessary for the innovation processes that subsequently spread to the periphery, too, this making it possible to develop the more backward areas. These objectively existing development mechanisms make territorial economic inequality inevitable and total elimination of regional disproportions fundamentally unattainable, especially for big countries. The territorial disproportions in standard of living are greatest in countries that are trying to catch up in their development, including ones with a transitional economy, such as Russia. The ten biggest constituent entities of the RF account for 54% of the total aggregate GRP, and this share has increased substantially over the economic reform years (Table 4.1). This is primarily due to the rise in the share of the federal capital city, where the headquarters of the biggest Russian companies and over half the banks are concentrated. Differences between the centre and the periphery exist in any country, but in Russia they have reached enormous proportions and continue to intensify during the economic growth period. Table 4.1. Share of the principal constituent entities of the RF in the total GRP of Russia, % Moscow City Moscow City Tyumen Region Tyumen Region Moscow Region Sverdlovsk Region St. Petersburg Moscow Region Tatarstan St. Petersburg Sverdlovsk Region Samara Region Samara Region Krasnoyarsk Territory Krasnoyarsk Territory Nizhne Novgorod Region Krasnodar Territory Bashkortostan Bashkortostan Chelyabinsk Region 2.7 Total for 10 constituent entities of the RF 54.2 Total for 10 constituent entities of the RF 41.5 Note aggregate GRP of all constituent entities of the RF is less than the Gross Domestic Product (GDP) of Russia, since the GDP is not distributed by region. The process of concentration of the economy in the regions with the most favourable conditions for development and the intensification of the inequality between centre and periphery at all levels (between regions and within them) during the transitional period 50

51 is objective in character. As a matter of fact, in Russia today, place of residence determines a person s economic possibilities. The contrasts are particularly evident if you compare the per capita GRP indicators. In Figure 3.1 they are calculated in US dollars at purchasing power parity (PPP) and are adjusted to the cost of living in the regions. For comparison, the per capita GDP of Portugal at PPP was over 18,000 dollars in In Russia, only the Tyumen Region (with its autonomous areas) had higher levels, and Moscow was approaching those of Portugal. It is understandable that the GRP of the leading oil and gas production areas of the Tyumen Region should not really be compared with that of a separate state, since regions have an open economy a large part of the output produced there is assimilated into the federal budget and is then redistributed. Even so, such a comparison is useful for understanding the level of regional discrepancies: the indicators for Tyva and Ingushetia are so far much closer to those of such countries as Mongolia and Uzbekistan. per capita GRP, US dollars, Purchasing Power Parity Tyumen Region Moscow City Krasnoyarsk Territory Tatarstan Komi Perm Region Samara Region Russia Kurgan Region Ivanovo Region Dagestan Tyva Ingushetia Figure 3.1 Per capita GRP in US dollars at Purchasing Power Parity for 2001, adjusted for the regional cost of living Source: N.V. Zubarevich s calculations, data from Report on Human Potential Development of the UN Development Programme for The high level of differentiation of economic possibilities served as the objective basis for significant regional differences in terms of the level of poverty. Figure 3.2 shows the regional differentiation in the level of poverty in 2003, which coincides, in the main, with the differences in economic development. The highest proportion of poor people are found in the poorly developed republics (Ingushetia 83%, Kalmykia and Dagestan 53-55%) and autonomous areas (Ust-Ordinsk Buryatsky 83%, Komi-Permyatsky 51

52 64%). The lowest indicators are achieved only by two Tyumen areas: in the Khanti- Mansiisk Autonomous Area, the poor account for 11% and, in the Yamalo-Nenets Autonomous Area, with its smaller population, 8%. In addition to the high wages in the basic sectors of the economy, poverty is also reduced by large-scale social security programmes and markups to the wages paid to those employed in the social sphere, financed out of regional budgets. If the population of the area is large, however, this is much more difficult: in Moscow which is the richest, 20% of the population are poor and in Russia as a whole the average is 20.6%. The level of poverty in the other regions with an export economy is the same or even higher. As in Moscow, the higher wages there mean higher prices and, consequently, a higher subsistence minimum. As a result, not only socially vulnerable population groups (single-parent and large families, the disabled and the unemployed), but also those employed in branches of the economy paying low wages (state-financed organisations, import-substituting industry) find themselves in poverty more frequently. Half of the poor consist of complete families with working parents and 1-2 children. For Moscow and the northern regions, the problem of pensioners is equally acute, as the majority receive pensions below the subsistence minimum. Kaliningrad Kfliningrad St.Petersburg Arkhangelsk Moscow Perm N. Novgorod Novosibirsk Khabarovsk Samara Voronezh Ufa Chelyabinsk Omsk Irkutsk Vladivostok Rostov-on-Don Volgograd Share of the population with incomes below the survival minimum, % of the total population in the region нет данных Level of Poverty, 2003 Figure 3.2. Level of poverty map Source: N.V. Zubarevich. Social Atlas of Russian Regions ( For analysing the demographic profile of poverty, we can only use the NOBUS data, since our other information sources do not contain adequate figures. On the basis of 52