Argentina: Crisis and Poverty 2003

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July 24, 2003

Document of the World Bank

Report No. 26127-AR

ArgentinaCrisis and Poverty 2003A Poverty Assessment(In Two Volumes) Volume I: Main Report

Poverty Reduction and Economic ManagementLatin America and the Caribbean Region


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TABLE OF CONTENTS

EXECUTIVE SUMMARY ......................................................................................................................... iTHE ECONOMIC RISIS AND THE POOR.....................................................................................................

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THE GOVERNMENT ESPONSE................................................................................................................. 11REVERSING THE TRENDS -POLICIES FOR THE IMM EDI ATEFU TURE....................................................... i11LONGER-TERM OVERTY REDUCTION MEASURES................................................................................... V

CHAPTER 1 THE EVOLVING CRISIS AND THE POOR ................................................................. 1BACKGROUND.......................................................................................................................................... 1POVERTY RENDS .................................................................................................................................... 3LABOR ARKETS N D ADJUSTMENT ......................................................................................................9

CHAPTER 2 HOW THE POOR COPE WI TH A CRISIS .................................................................. 14IMP AC T OF THE CRISISIN ARGENTINEAN AMILIES- A SURVEY OFCSOS........................................... 14RESULTS OF A SPECIALHOUSEHOLDURVEY........................................................................................ 18COMPARISONS WITH OTHER COUNTRIES............................................................................................... 25

CHAPTER 3 THE GOVERNMENT RESPONSE TO THE CRISIS: SOCIAL SPENDING ..........27BACKGROUNDAND GENERAL RENDS ................................................................................................. 27SOCIAL ASSISTANCE ROGRAMS........................................................................................................... 29EFFICIENCY AND EFFECTIVENESS F TARGETED S OCIAL SPENDING..................................................... 32

I M PA C T O N TH EHEALTH ECTOR...........................................................................................................37IM PA CT ON AFFORDABILITY OF BASIC INFRASTRUCTURE SERVICES...................................................... 40

CHAPTER 4 POLICY IMPLICATIONS AND TH E FUTURE ......................................................... 45SHORT-TERM S S U E SOR A PRO-POOR RECOVERY.............................................................................. 45LONGER-TERM OVERTY REDUCTION

EASURES................................................................................47

STATISTICAL ANNEX ........................................................................................................................... 53

IMP AC T OF THE CRISISON EDUCATION .................................................................................................35

BACKGROUND APERS(IN VOLUME 11)

1 ARGENTINAS RISIS AND IT S MPACT ON HOUSEHOLD ELFARE .Ariel Fiszbein. PaulaInks Giovagnoli and Isidro Aduriz.

2.RISK-ADJUSTED POVERTY IN ARGENTINA: MEASUREMENT ND DETERMLNANTSGuillermo Cruces and Quentin Wodon

3. C O N O M I CCRISIS AND SOCIAL CRISIS IN ARGENTINA SOCIAL ORGANIZATIONS. COMMUNITIESAND FAMILIES .Sandra Cesilini. Irene Novacovshy. CarolinaMera and Paula Giovagnoli.


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4. POVERTY AND THE LABOR ARKETN THE ARGENTINECRISIS 1998-2002.Emesto Kritz

5. GOVERNMENT ERVICES FOR THE POOR.Cristo'bal Ridao-Cano.

6. THE ARGENTINEHEALTH ECTOR IN THE CONTEXT OF THE CRISIS.Juan Pab lo U ribe and Nicole Schwab.

7. THE IMP ACT OF THE CRISIS ON THE ARGENTINEEDUCATIONAL ROCESS.Sergio Espaiia, Suhas D. Parandekar and Ma ria Paula Savanti.

8. POVERTY MEASUREMENT IN ARGENTINAHaeduck Lee

9. THE SOCIAL IMPACT OF TH E ARGENTINECRISIS O N THE INFRASTR UCTURE SECTORSVivienFoster and CEER


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Argentina - Crisis and Poverty 2003A Poverty Assessment

EXECUTIVEUMMARY

The Economic Crisis and the Poor

Arge ntina has gone through a maj or crisisin the past year, res ulti ng in severe soci aldislocations and a reduction o f welfareby t s poorest. Th e collapse o f the Con ver tibil ity Plan, thefreezing o f bank deposits, and the default on fore ign debtsand the result inghigh inflation, fallin goutput and exchange rate devaluation, carried wi thi t severe consequences fo r the poo r. Th e rateo f poverty as traditiona lly measured rose fro m37% in 2001 to a peak o f 58% by the end o f 2002.The numbers o f people li vi ng below the indigence line doubled. Income distribution worsened,suggesting that the poorest segments o f the popu lation suffered more than the m ore we ll o ff.Unem ployment rose,but no t nearly as mu ch as expected, perhaps because o f the mi tig at ingeffects o f government employment programs. Nevertheless, the rate o f unemploym ent continuesto be high at 18%. The sharp rise in poverty in great part has been due to the ris e in he prices o ffoods, a majo r po rtio n of the expenditures o f the poor. U nl ik e other economies, foods are animportant exportin Argentina, and their prices rose w it h the devaluation.

The break with the Convertib ilityPlan also meant that the adjustment in he labor marketoccurred mo re through wages, rather thanby an increase in unemployment. Infla tion reducedreal wages substantially. U nl ik e previous recessions, moreover, unem ploym ent arose large lyfr om the form al sector,with an increase in employment in the info rm al sector. In previousrecessions, m ost o f the unemployment came fr om the i nf orm al sector.Thus, the inform al sector

acted as a type o f cushion f or cutbacks in he form al sector. How ever, the job s createdin

theinfo rma l sectorin his case tend to be temporary, lo w pa id obs that effectively obscure the deptho f the crisis. W hi le employeesin he for ma l sector were e ntitled to severance payments underthe labor law, there i s evidence to suggest that they rece ived amounts substantially less than the irentitlements as employers negotiated partial settlements.

The impactof the recession has been di ffi cu lt for m any groups. M an y o f the midd leclass, faced wi th bo th declin ing wages and freeze o nbank assets, moved i nt o poverty f or thef i r s ttime. These new p oo r have characteristics somew hat differe nt than the trad itio nal poor,incl udi ng higher levels of education.In addition, they appear to have a more di ffi cu lt timeadjusting to new circumstances. Interv iewswith c iv il society organizations representing thepoo r poin t to higher levels of fam ily violence, alcoholism , and crime. Fam ilies appear to cope

through a variety of strategies, inc lud ing increased produ ctio n o f goodsin he home, the entryint o the workforce o f those not previously employed, and reduced consump tion o f fo od andother products. In addition, they often substituted to wa rd the purchase o f cheaper goods andlow er cost foods. Expen ditures o n school materials were ofte n reduced, and wh ile enrollm entshave not declined there ma y be a decline in attendance. In ma ny cases, the po or hav e purchasedthrou gh delayed paym ent schemes and/or raised mone y by se lling assets.

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The Government Response

The G overnm ent has made a major eff ort to main tain or expand social spending,pa rtic ula rly s ocia l spending targeted to the poor (safety nets). To tal soc ial spending has increasedas a share o f he budget, but declined 32% in rea l terms. F or spending targeted to the poor,

spending has been increased by 21 percent, a considerable achievement con sider ing thebudgetary problems facing the Governmentduring the crisis. In addition, i t s in mark ed contrastto previo us recessions when social spending fo r safety nets was actually reduced. How eve r, thelarge increase in the numbers of poor peopleduring the crisis means that rea l spending pe r poorperson has actually declined b y 16%.The G overnment has made a ma jor effort to organize anew w orkfar e program, thePlan Jefes, wh ich provides a payment o fA$150 per mo nth for thoseengaged in community w ork or training.This progra m presently has about 2 m i l l i o nbeneficiaries, and may be the explanation o f w hy unemployment declined between M a y andOctober 2002.

Bud get c uts have had serious consequences in he social sectors. In education, spendingdesigned for investments in mp rov ed services have been diverted to shorter-term safety netprograms, such as school feeding. Shortages o f funds have prod uce d teacher strikes and theinterruptionin earning. In some cases, teachers have been paid w it h pr ovin cial governmentissued quasi-money instruments. T he severe budget prob lems have prevented the continua tion o fthe education ref orm strategy launched by the G overnm entin 2000. In he he alth sector, thehealth insurance system whic h depends on wage contributions f ro m form al sector workers, hasseen majo r reductions in revenues. As a result, health providers (the obrus), have no t been ableto pro vide the mandatory he alth benefits. Revenues for thePAMI, the hea lth system fo r retirees,have fallen by 40%, also resulting in cutbacks. Th e result has been an increase in the demand fo rservices fro m publ ic hospitals, whi ch no rma lly provide services to those withou t hea lthinsurance coverage (workers in he info rm al economy). T he pub lic hospitals, w hic h are generallyrun by the provinces, have already seen a red uct ion in funding fr om b oth provin cial sources and

federal transfers. Hou seho ld surveys also reveal thatmany peo ple are spending less onpreventive care, such as taking child ren fo r immu nizatio ns and checkups. M or e broadly, the useo f quasi-monies fo r the payment o f pensions and publ ic wages has often resultedin reductions inreal incomes, since ma ny o f these pro vinc ial quasi-monies ha ve been trading at a discount.

The ta r i ffsfor basic utility and transportation services were pesified (fi xe din pesoterms) a nd have rema ined frozen since January 2002, in contrast t o other basic goods whosecosts have risen on the order o f 30% o n average. Nonetheless, as a result o f fal lin g incomes, thepoorest households face significant problemsin af for din g these basic services. Th e f i r s tquintilei s curren tly spending22% o f t s incom e on water, energy and telephone calls, wh ile about20%to 25% o f these households report ha ving been disconnected fr om electric ity an d telephone as aresult o f non-payment.At the same time, the po lic y o f freezingtar i ffs threatens the financialsustainability o f the infrastructure service providers, w ho have already defaulted o n abouthalf o ftheir US$16bi lli on stock o f foreign currency denominated debt. Sometariff increase fo r theseservices therefore appears to be inevitable, and raises further concerns about af ford ab ility .

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Reversing the Trend s - Policies fo r the Imm ediate Fu tur eA recovery o f the econom y has begun,but the future remains uncertain. W hi le other

countries have had robust recoveries fro m crises, such recoveries take a year o r tw o t o develop.At the same time, the crisis its elf constrains the actions o f the gove rnm entin erms o f how i t

might respond to the social problem s created by the crisis: resources are scarce and op tions arelimited.

M ac ro Policies. Clearly, the root cause o f he recent growt hin poverty andunemp loyment can be traced to the problems o f weak economic management, and theconsequent slow economic grow th.A primary concemi s to find policies that wil l stimulate arap id and sustained recovery, but in a way that also increases employm ent o f ow-sk illed poorpeople. These policie s include strengthened pub lic finances, imp rove d governance, p rovi din g aclearer regulatory environm ent for the private sector, restoring a healt hy bank ing system,andclear ing public sector arrears and norm aliz ing relations wit h external and domes tic creditors.

The m ove to a floatin g exchange rate, and the consequent reductio nin rea l wages, haspro vid ed the basis for a potent ial recovery. T he reductionin real publ ic sector wages and pensionobligations w ith inflation, w hile nomin al revenues increased, has temporarily provided f oranimp rov ed fiscal balance. Th e government, however,s t i l lfaces serious issues in iscal andfina nc ial sector management. Past actions, i nc lu din g the freeze on deposits, an d the break o f thedollar-peso link, have reduced faith in he financia l systemand eliminated the sources o f creditneeded to finance a recovery. W hi le the Government has lift ed the freeze o n checking andsavings deposits (the corralito), the finan cial system remains weak. The task o f generating aadequate revenues to cover the costs o f he finan cial sector wh ile p rov idi ng social serviceswil lbe diffic ult without efforts to broaden the tax baseand better enforce existing tax obligations. O fparticular importancein he longer term wo uld be a strategy o f m ovi ng away fro m the regressivevalue-added tax to greater relian ce on a progressive inc ome tax.A stronger tax base wo ul d also

perm it a reductionin axes on some ke y factors (exports, labor) w hil e pe rm itti ngan expansion ofsocial programs whil e main tainin g a balanced budget. O verall, go od mac ro policies, leadin g tosustained growth, re main the single best route to po verty reduction.

Safety Nets/Severance Pa yme nts. Govern ment programs s t i l ldo not provide anadequate safety net for the u nem ploye d on a permanent basis. Worke rs h ave ha d to rely o n theiro w n savings, and their severance pay men t benefits, as their ma jo r safety net. During the pastcrisis w e have seen that bo th were inadequate: savings accounts were froze n, and severancebenefits were reduced through nego tiations between workers and employe rs. Emerge ncy publicprograms have helped. However, wh ile the expandedJefes pro gra m has absorbed 2 m i l l i o nunemployed, and i t accounts for 7.5% o f the current expenditures o f the national government,i thas reduced unemployme nt by at mos t 4 percentage points (assuming th at al l entrants t o the Jefesprogra m were unemployed before, whi chi s no t true). In general, so cial expenditure programss t i l l tend to fa ll w ith a crisis,just when the numbers o f poor and unem ployed increase. H owever,i t s also true that social programs, once established, tend to be vie we d as an entitlement, and aredi ffi cu lt t o cut once a reco very takes place. Saf ety net prog rams are scattered across thegovernment, and many programs are costly and duplicate other programs. Smaller, inef ficie ntprograms should be combined.

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A ma jor safety net for workersin he for ma l sector is the severance payments o wed t oformal-sector workers upon ob termination. For bankruptf irms, i t s ike ly there could be nopayment at a ll since these obligations are not pre-funded. A better solution wou ld be a majo rexpansion in unemp loyment insurance, w it h either a fix ed benefit, or a bene fit based on someprop ortion o f average wages, and a fixedlimit on total payments. A ny such re form should be

extended to include mo re o f the employees nowin he info rm al sector, who have neitherseverance payments n or unemploym ent benefits and are outside o f the so cial security system.Such an extension, however, imp lies that these employees mo ve f ro m the inf orm al to the form alsystem, and pay s ocia l security and other wage taxes, and are covered by the lab or code. Thiswo uld further reduce labor market flexibility,given the rigidities inherentin he present labo rcode, Thus, unemp loyment insurance ref orm should be accompaniedby the liberalization of thelabor code, w hich itself w il lbring benefits in making the labor market mo re flexible, andreducing labor costs.

Education. The provis ion o f educational services needs to be m aintained, pa rticula rlyw it h regard to pa yment o f teachers, as the welfare effectsgo beyond the immediate incomelevels o f teachers. W h il e demand fo r social assistance (cashand food transfers) has accelerated,diversion o f educationfunds to pro vide these short-term needs may co nflic t w it h theneed toreach educational objectives. W hi le cash-transfer programs ma y be helpin g to main tain schoolattendance, their effectiveness needs to be evaluated against other strategies f or im pr ov in geducation. Federal government education allowances to province s should be adjusted to insureequity between provinces, w it h a bias toward thosewith the greatest poverty . High priorityshould be given to the strengthening o f nforma tion systems and the use o f them to in fo rmeducational polic y. Such measures should be complemented and strengthened thro ugh theencouragement o f c omm unity participation.

Health. In he midst o f the on-going social crisis, the first pri ori tyin health i s toguarantee access fo r a ll o f the population, particu larly the poo r wh o lac k insuranceand have less

ability to pay, to aminimum package o f treatments and medicines aime d at the major healthrisks. In this context, the Government should protect financing o f prio rity programs such asthose for m aternal-child health, immu nizations,and pub lic hea lth (epidemiological surveillance,contro l of transmittable diseases and others). M o re specifically, the gradua l impleme ntation o fan infant and maternal health insurance and the def initi on o f and agreement o n provinci al healthgoals (w ith monitorable health indicators) seem to be two k ey i ni ti al steps towards mo reeffective protection fo r the po or uninsured.

Other needed government actions must simultaneously address chron ic inefficienciesinthe health sector, freein g up scarce resources to support the above and im pro vin g theeffectiveness o f health care for the poor. M a in actions here inc lude elim inat ing inefficienciesand overlaps in natio nal-le vel insurance programs such asPAM1 and the Obras Sociales, an d in

the interface between the pu bli c hospitals and the soc ial securit y system (enhancing costrecovery by the former); strengthening the regulatory fram ew ork o f he health sector, as we ll asthe institu tional capacity o f the regulatory agencies;and imp rovi ng the performance o f he publichospital network, emphasizing prim ary he alth care.

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Lon ger- Term Poverty Reduction Measures

In he longer-term, anti-poverty effortswil l need to focus o n tw o broa d areas:

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First, reforms and policies that w il l lead to a pattern o f growth that w il l be mo re rapid

overall, and feature a higher lev el o femployment pe r unit o f output.Second, imp rov ing the access o f the poor t obasic services, that w il l bot h raise their overallwelfare and, b y mpr ovin g theirhuman capital, improv e the produ ctivityand their ability tocompete in an increasingly globalized economy;

Generating Lab or Intensive Growth . Macro-economic policies that perm it rap id andstable econom ic grow th witho ut i nfla tion are an essentialfirst step to a sig nifican t declineinpoverty. This i s more lik ely to happeni f Argentinas labor markets operate efficiently.However, Argentinas labor marketi s one of he most rigid and regulated in the developingworld, preve nting wage adjustments fro mtaking place easily. Some o f key short ter m reformsthat w ou ld facilitate a more orderly operation of the labor market include:

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elim ina tion o f centralized or sectoral collec tive bargain ing agreements wh ic h areautomatica lly extended toa ll workers in a sector, eve n i f not signed and even whe n expired;reduce the high cost o f abor b y reducin g labor taxes, i nc lud ing severance payments;allow temporary employment thati s no t subject to p ay rol l taxes, as under the form ermodalidades promovidas, andextending programs whic h perm it exceptions forsmall scale enterprises.

In he longe r term, the critica l proble m remains that a large part o f the labo r forcein heinfo rma l sector lacks any fo rm o f pension o r une mploymen t insurance coverage.A majorrefo rm o f he labor laws that wo uld reduce their presenthigh eve l of protectiveness should befo l lowedby an extension o f at least minimum coverage to small f i r m s and others in he now

informal sector. I t wo uld also help reduce the gap in wages between the form al and info rma lsectors, and thus help make m ore equal the present unequal distribution o f income.

Inc rea sin g Access to Services. A majo r effort should be undertaken to raise the lev eland qual ity o feducation available to the poor, and increase their access to secondary an d hig hereducation. One o f the key problemsi s that children of poor families are more lik ely t o drop outo f school for various reasons. A viab le strategy in education wo ul d include:

4. greater investments in secondary schools in poo r neighborhoods;expanded cash grants to poor fam ilies conditional on keeping childrenin school particularlyat the secondary level, in order to offset the economic incentives fr om school leaving and theeffects o f unemployment;the establishment o f a system of partia l cost recovery f ro m students at pub lic un iversities,wh o generally tend to be fro m non-poor families, and the establishment o f a nation-widesystem o f scholarships f or students fr o m poo r families.expanding the capacity o f the current pub lic univ ersity system, b oth by mproveme ntsinoperating efficiency and through further investments.

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.The topic o f how to attain sustained economic growth, however,go beyon d the scope o f this report.

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While the situation in health care i s less critical, nevertheless poor, i nf or m al workersmust rely o n the public hospitalsystem, wh ile form al sector workers have he alth insurance.Greater efficienc yin he health sector cou ld improve the qua lity o f service available to the poor.Particularly, the Gov emm ent should focus p ubli c health care expenditures o n those withou thealth insurance, b y mp rovi ng cost recovery fro m those w it h insuranceand the ability t o pay,

and by improvingthe operating efficiency o f the public hospital system. W hi le granting moreautonom y to pub lic hospitals can impro ve their efficiency, care needs to be taken to a voidbuilding n ncentives that w i l l reduce services to the poor. Eventually , hea lth insurance coverageshould b e extended to those in he info rma l sector not presently covered. E xis tin g programs o fmaternal and ch il d health (PRO MI N) need to be expanded,and l inked wi th fam ily planning andreproductive health services fo r the poor,in order to reduce their curre ntlyhigh rate of fer til i tyamong the poor.

Deficiencies in infrastructure both reduce the produc tivity o f the poor, andlimit humanresource development. The urban poo r liv ein areas usually d evo id o f adequate sanitation andsafe water, and often witho ut p aved roads. Prov ision o f such pub lic servicesin poorneighborhoods can impro ve health outcomes.But attention also needs to be focused on buildingup communities, especiallyin urb an areas, that la ck roads, lights, and other services, an d do nothave legal titles to their land. The urban poor are particularly vulnerable to prob lems o f crimeand violence, and attention needs to be pa id to alcohol anddrug abuse, and improvements inpolice protection and access to justice.

There i s considerable consensus that, in order to resolve the d ilem ma between theafford ability o f basic infrastructure services and their continued financial sustainability, somekind o f social policyi s required to protect the poorest fro m the impact o f any futuretariffincreases. Lo ok in g further ahead, as incomes recover and afford abi lity improv es, the focus o fsocial po lic y for the infrastructure sectors should switch away fr o m socialtariffs and towardssocial connection programs, particularlyin he water, sewerage and natura l gas sectors, where

considerable coverage defic its re ma in and those witho ut access suffer substantial econom icandsocial costs.

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Policy Actions for Reducing Pov erty

AreaEstablishment o fsustained, pro-pooreconomic growth

Establishment o f a strongsafety net

Im prov ing education,health and infrastruc tureservices

Actions NeededMac ro policies that w il l provide a stable environment fo rprivate sector-led growth, inclu ding a healthy financ ialsystem, and an efficient reg ulatory netwo rk forinfrastructure.Impro ving the fiscal baseto be able to fund social programsdirected at the poor, and m ov ing away fr omthe regressivevalue-added tax to a m ore progressive incom e tax.Providing for a more secure fo rm o f unemploymentcompensation, such as unem ploy me nt insurance or pre-funded severance payments.Imp roved evaluation o f existing safetynet programs, andcons olidatiod closing of weak and ineffective programs.Reforming the labor code to makei t mo re flexible, andthereby allo w an extension o f coverage to thosein heinfo rma l sector.Health:

o Protect and restore key programs be nefiting thepoor

o Dev elop health insurance fo r peoplein the informa lsector, esp. maternavinfant

o Elimin ate inefficiencies and overlap betweensystems

o Increase the efficienc y and autonomy o f publichospitals

o Ma intain paym ents fo r teachers and operating costs

o Focus pro vinc ial allocationson the poorest regionso Increase investments in secondary schoolso Prov ide increased cash grants to poor fam ilies to

promote secondary school attendanceo Expand the pub lic university system

o Expan d basic infrastructurein po or urban areas,inclu ding water, roads, electricity;

o Adjust pric ing o f infrastructure services to benefitthe poor;

o Take steps t o reduce crim e and violencein poorneighborhoods.

Education:

Infrastructure and other Services

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Th e Relative Size of the Argentine Crisis in 2002.The table belo w shows some indicators for various countriesin crisis, includin g Mexico duringthe Tequila Crisis,Four of the East Asian Tigers d uring the crisis o f1997-98, Russia in 1998199, and Argentina itselfin 1995. Incomparison with these crises, Argentinai s second only to Indonesia in erms o f decline in GD P and the drop in realmanufacturing wages, ranks firstin erms o f he drop in the exchange rate, and one of he highest in erms o f theresulting rate o f unemploym ent and increasein poverty.

Table 1.1 Comparative Statistics on Gr ow th and Poverty

Source: Fallon and Lucas (2002), and Wo rld Ba nk staff estimates.

Clearly, this situation, wh ich was not very goodin 1998, has become even more dif fic ultas o f 2002. Prelim inary evidence shows that poverty no w (October2002) has reached the lev elo f about 58 percent fo r urban areas (see figu re 1.1).3 Unem ployment has risen from 13 percentin1998 to a peak o f 22 percent in M a y2002 (in urba n areas). Com pared to other countriesexperiencing crises, the parameters fo r Arg en tina are mor e severe than mo stin erms o f poverty,

unemp loymen t and fallin g wages (see box and Table1.1). Fa llin g revenues have further cu tsocial programs, adding t o the p overty o f the poorest, and lead ing to increasing social unrest,crime, and violent p oli tic al demonstrations. G row ing uncertainty has le d to a declinein oreigndirect investment and a cut-o ffin access to fo reig n capital, furthe r redu cing the prospects fo rlong-term gro wth and recovery.

This report wil l not attempt to cover all o f the groun din he original PovertyAssessment4. Rather, i t w i l l focus on broad topics that are relevant to the current crisis:

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First, i t wil l examine the trends in poverty, in com e distribution, and unemployment.Second, i t w il l lo ok at ho w people have adjusted to the crisis, ho wi t has affected thepoor, and what types o f coping strategies the y areusing.Third, i t wil l lo ok at ho w the crisis has impa cted government spending programs,pa rtic ula rly those considered to be pro-p oor and that constitute the social safety net.Finally, i t wil l oo k forward and suggest whatmight be done better in he future toreduce pover ty

Data since 1998 uses a poverty li ne developed by INDEC.Fo r a summary o f he orig inal p ove rty assessment, see box.

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Summary of the P over ty Assessment of 2000

This report found that since 1991, Ar gent ina had gone through a period o f adjustment that hadled to a remarkably sharp drop in rate o f inflation , the priv atiza tion o f state-owned industries,and theopening o f the economy to foreig n commerce. Progresson the economic front produced real gainsinterms o f reducing poverty and improving welfare. Poverty rates fel l fro m 40%in 1990 to a l ow of22% in 1994. How ever, since 1995 poverty had gro wn s lightly as a percentage o fthe population, andincom e distribu tion had deteriorated. B y 1998 the poverty rate for urban areas was estimated to be29%. The deterioration of income distribution reflects the fact that while overall growth hadbeenpositive, and average per capita incom e had risen, the gains had gone largely t o the more s killed andeducated in the labo r force, and not tothe poor.

The report noted that, in general, poor families have low levels of education, have a largenumber o f dependents, and are younger than families that are not poor. Large family sizes are theresult of muc h higher fer tility rates among poorer women, a factor that tends to perpetuate poverty.They live in areas lac king often in water and sanitation services, roads, and other pu blic amenities,l ive in areas affected by flooding, and l ive in overcro wded conditions. T he often lac k titles to the landthey inhabit, and therefore lack the incentive andthe collateral to invest in their housing. Thedistribution o f urban servicesi s uneven between urb an areas; some seem to do a better jo b than othersin mee ting these basic needs.

The report found that Government programs that were specifically targeted to the poorgenerally w orke d well, and were we ll targeted. The mo re general prob lem was one of coverage. Onlyabout 25% of poor families received any form of direct public assistance,in the fo rm o f cash, food,etc. The report estimated that publi c and private transfers together pro bably reduced ove rall povertyby 4 percentage points, and were particularly important for the elderly.

Shifting demand for labor had put a high premium on education. Wh ile rates of return toprim ary education were extremely l ow (about 3%), returns to tertiary education was estimated to be29% (1998). Despite these high returns, the po or o ften did no t complete secondary school and wereunderrepresented in higher education. Rep etition rates were high, as were dropouts. Only 24% of

those aged 18-24 among the poor we found to have a secondary education. The low qualityofeducation, particula rlyin poorer areas, and the need to w ork, al l work ed against school completion.

The report noted thatlimited inform atio n available suggested that there was substantialpoverty amongthe rural population, particularlyin the Northwes tand Northeast. M os t o f these poorwere n ot farmers, but farm and non-farm workers wh o were often unemployed and lacks k i l l s andeducation. The indigenous people o fthe rur al areas seem to be particu larly poor, since they l iv einremote areas away fro m pu blic services.

Source: World Bank (2000) Poor People in a RichCountry: A Poverty Report for Argentina,World Bank report no.199962-AR ,March 25,2000

Poverty Trends

Poverty i s measured using the governments p overty li ne and theEncuesta Pemanentede Hogares, the bian nual household survey cove ring about30,000 urba n households. D ata fo rind ivi du al urban areas are combin ed to produce a n ationa l urban pov erty estimate,but theseurban areas themselves cover o nl y about 70 percent o f the urban population.Thus, the surveysleave out the popula tionin smaller urba n places and a l l o f the rural population, muc hof w h ic h

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Poverty Lines in Argentina

This report classifies the poor wit h the income thresholds that IND EChas adopted as i t s offi cial poverty lines since theirf i r s t introductionin1988. Poverty l ines consist of the basic f ood basket and nonfoodconsumption bundle whose combin ed values arejust sufficient to allow

a typical individu al to achieve aminimum evel o f material welfare. Thebasic foo d basket was constructed by loo kin g at the fo od consumptionpatterns of a reference household grou p between the 2d and 4 incomedeciles in the 1985-86 Survey o f ncome and Expenditure administeredfor Metro politan Buenos Aires (GBA ). The indigent foodline i s thevalue o f he basic food basket that wo uld a llow a representative adultmale age 30-59 years wi th moderate activity le vel to achieveconsumption o f a daily energy intake o f 2,700 calories. Upd ated for2002, the adult equivalent ind igent lin e for residentsin MetropolitanBuenos Aires i s estimated to be 81.8 pesos per m onth in April 2002 (orabout US$28.80). Observation o f nonfood consumption amonghouseholds in he same group gave the emp irical parameter (inverseEnge l coefficient) to estimate the adult equivalent p overty line, whichwas estimated to be 193.8 pesos per mo nth (or about US$68.23; allconversions are at the Ap ri l 2002 exchange rate o f 2.84 pesosperdollar).

probably has a higher thanaverage pov erty rate5.Despite improvementsinpove rty measurement in thepast, Argentina s t i l llacks a

comprehensive l iv in gstandards survey thatadequately covers rur al andurba n areas. In addition, a l lo f the numbers on povertyreported here have thedrawback o f being based onincome. I t s widelyrecognized that consum ptioni s a better basis for measuringwelfare, since i t allows forinter- temp oral adjustments,and i s mo re accuratelymeasured than income.

Betwee n 1998 and 2001, there was a steady increase in both poverty and unemployment.The pov erty rate rose from28 percent o f the po pulationin M ay 1998 to37 percent by October2001, as the economy stagnated and the ec on om dfi na nc ial crisis gradually worsened (seeFigure 1.1 and Statistical Annex TableA. 1). Likewise, unemployment rose fr om 13 percent to 18percent. T he collapse o f the conv ertib ility plan, m ajo r exchange rate devaluation, and default onextem al debts in January 2002, however, pro duc ed asharp and sudden increase in poverty. ByOctober 2002 the pove rty rate reached58 percent (see Fig. 1.1). Une mplo yme nt peaked at 22%in May, but declined to 18%in October. At the same time, ex treme poverty, de fine d as those

witho ut sufficient incomes to bu y a basic basket o f food, has gone fr om6 percent to 28 percent.Fe w countries in he w or ld have seen such a rap id rise in poverty-an increase in the povertyrate o f more than 50 percent. O f particular interesti s that the imp lie d pove rty elasticity, w hic hwas e stimated to b e about-1.8 in the 1998 report, appears to be about-3.0 during the crisis.6

limit ed survey o f 2,800 household undertaken by the Wo rl d Bankin 2002 foun d a poverty rate o f 53 percentinurban areas and 73 percent in ru ra l areas (see Fiszbein, Gia vagn oli, and Andu riz, Nove mbe r 2002. Argentinascrisis and i t s impact on household welfare, Background Paper No. 1, foundin Part I1 o f this report.)

Assuming -1 1 percent grow th in 2002 and population gr ow th o f 1.3 percent,per capita income wi l l have fallenabout 12 percent. Assuming an average pov erty rate for the year o f 55%, the rate then increased 49 percent, or animplied elasticity o f about -4.1.The estimate o f -1.4 i s based on the longer, 1990-98 period.This illustrates thedanger, however, o fusing a fixe d pove rty elasticity based on historical relationships for estimating short-termimpacts o f macrocrises.

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Figure 1.1. Unemployment and Poverty as Percentage of Population, and Real Per CapitaHousehold Income, 1990-2002

70.0

60.0c2 50.0s58 40.0Q0 30.0

h

5& 20.0Q

10.0

0.0

350.0

300.0 $00

250.0 .E3 8

200.0 -c: 3$ Q

.t= &100.0 3

t5

5 0 ,150.0 2 5

m

0

50.0 Q

0.0

The sharp rise in pove rty can be attributed to t w o bro ad effects: h igher prices as a resulto f the devaluation, particu larlyin food and other wage goods, and unemployment. Un li ke othercountries, wh ere basic foods are no t traded com mod ities,in Arg ent ina basic foods are traded,and thus the devaluation had a direct impact o nliving costs. Poor people, with high evels offood in their consumption basket, were affected particularlyhard. Thus, the poverty line fo r

Buenos Aires increased betwee n April 2001 and April 2002 by 26 percent, w hi le the indigenceline (purely food) wentup b y 29 percent. B y contrast, thetotal consumer price index we ntup b yonly 18 percent in the same period. Kr itz 7 estimates that ev ery po int risein he price index fo rthe basic fo od basket produces 50,000 more indigent poorin he country. Furthermore, h eestimates that the decli ne in real income between M a y2001 and M a y 2002,30 percent can beexplainedby the fall in employment, 20 percentby a decline in nom inal wages (including fewe rhours worked), and50 percent by the increase in price s (see figu re 1.2).

rnest0 Kri t z , December 2002, Poverty and the Labor Market in the Argentine Crisis, 1998-2002, BackgroundPaper No. 4, Part 11.

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W h il e al l incomes have fallen, theincomes o f the poorest groups have declinedmore than those o f the richer groups.Thus, thetendency fo r inc om e distribution to worsen,noted in he 2000 report, has accelerated

during the crisis. As shown in able 1.2, theshare o f the top 20 percent income distributio nhas risen fro m54.8 percent in 1998 to 57.2percent in October, 2002. Conversely, theshare o f the poorest 20 percent has fallen fr om

coeffic ient has risen fr om 0.504 to 0.532,placing Argentina near the m iddle o f thel i s t o fLa tin American countries rankedby incomedis trib utio n (see table 1.3). Because theArgentine data exclude rural areas, wh ich are

3.8 percent to 2.8 percent.*The Gini

Figue 1.2 Factocs Explaining the M i n e n Real LaborIncane"-"

Ektdthe"rt increaseinpicts

FC6@h&Bbm4%

msddmMlin30% w1%

S r u a r D u 4 p d ~ ~ l i o n ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

The potentially explosive situation wit h regard to incom e and income distribution can bebetter measured by considering the actual real incomes o f each income group.As shown in table1.2, the real incomes o f the lowe st10 percent have falle n 49 percent since 1998. Th e richest10percent have experienced a declinein ncome of 37 percent. In bo th cases, m ost o f the declinehas come just in he last year. O f particular interesti s the very m ajo r change between October2001 and M a y 2002, w hen income d istribu tion worsened, a nd then the subsequent improv eme ntbetween M a y 2002 and October 2002. Ove rthis period, the incom e of the lowest 10% fel l 47%in real terms, and then increased b y 7 9% (see Table 1.2). I t s mpossible to identify exactly whatcaused these sudden movements, but the imp lementation o f the Government'sPlan Jefesprogram, w hich provides income supplements o f A$150 /month t o about 2 mi ll io n peoplemightexplain part o fthis the sudden improvement.

M ay Oc t oberYear 1990 1992 1994 1996 1998 1999 2000 2001 2002 2002

Per capita income b ydecile (in 1999 pesos)

1" decile (lowest) 38.3 45.6 43.2 28.1 31.7 30.4 26.3 17.1 9.0 16.15th decile 153.4 181.1 188.1 158.1 167.3 164.2 155.1 136.3 97.9 95.8lothdecile 825.4 1,004.7 1,060.7 992.3 1,114.2 1,028.2 1,041.9 993.8 769.9 705.3

Top 20% share 50.7 51.0 51.6 53.7 54.8 53.8 55.1 56.8 58.2 57.2

Bottom20% share 4.6 4.5 4.2 3.6 3.5 3.5 3.2 2.6 2.1 2.8Gi ni coefficient 0.454 0.456 0.467 0.493 0.504 0.494 0.510 0.530 0.551 .532Tophot tom 20% ratio 11.0 11.3 12.3 14.9 15.7 15.4 17.2 21.8 27.7 20.4

Relative measures

~

*These are based on the data for October f rom the Encuesta Permanentede Hogares (EPH) surveys.

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I t s mportant to note that thediscussion o f income distribution doesnot consider the impact o f any changesin the va lue o f assets. With the freezeon bank deposits many people wereunable to withdraw theirfunds, whichwere subsequently eroded by infla tion.Those hol di ng dollar deposits sawtheirdeposits converted in to pesos. Thus,many o f the non-poor who dependedon savings in banks as a type o f self-insurance against risks, foun d that theywere unable to use their personalsafety net. The mi dd le class were alsoaffected by defaults on bonds, anddec linin g real estate prices. Since the

poor have few, i f any, bank deposits/bonds/ re al estate they may have beenisolated fro m some o fthe worseaspects o f these adjustments. But thesefactors cou ldbe important fo rthemiddle-class whoare no w poor, or the

Fam ily size

Table 1.3. Gini Coefficients f o r Various Countries(data for 1998 income, unless stated otherwise)

Poverty Group

Indigent Moderate poor Non-poorOverall

4.9 4.0 2.7 3.5

Country GiniLatin-AmericaBrazi l .61Colombia* .58Chile .57MBxico .53

Venezuela S OArgentina (urban, 2002) .53

Dominican R epublic .47Uruguay (urban) .43Other countriesFrance (1995) .33Russian Federation .49Japan (1993) .25Un ited States (1997) .4 1

*consum ption dataSource: Wor ld Development Indicators, 2002 (WorldBank,Washington D.C.), table 2.8, except for Argentina whichi sbased on Bank staff calculations for 2002, and Uruguay, whichcomes from the mostrecent poverty reportof the World Bank(ReportNo. 21262 UR).

Ad ult equivalent family size% female-headed householdsAverage age

Labor force participation (among those o f age15-64)Years of schooling among adults aged20 and over

new poor.There i s some evidence to suggest, furthermore, thatlarge depositors were able toforesee the coming devaluationand make adjustments, w hil esmall depositors got caught b ythecorralito and the devaluation. I t s diff icu lt to say, however, how many o fthese sma ll depositorswere

Table 1.4 Poverty Profile in Urban Argentina, 2002

3.8 3.2 2.2 2.824.0 22.8 32.1 28.123.3 29.2 38.0 31.37.9 9.3 11.7 10.2

59.2 62.2 69.8 64.939.034.929.1

39.5 33.2 36.320.7 9.7 17.838.6 42.0 38.7

% inform al sectorUnemployment rateHours worked

% working< 30 hrslweek 37.8 25.9 17.5 1 24.6

Unemploymenti s clearly a phenomenon that affects po or fam ilies severely andi s a majorcomponent in explaining their poverty.I f we d ivid e the population in to the indigent po or (thosebelow the food poverty line),the moderate poor (those between the ind igen t line and the nor ma l

See Halac and Sch mukler (2003) for a discussion o f hese possibilitiesin both M exic o and Argentina.

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po ver ty line), and the non- poor we see certain clear characteristics. The un emp loym ent rateamong the indige nti s close to 35 percent, compared w it h on ly 2 1 percent for the moderate poorand 10 percent for the non-p oor (October, 2002, see Table 1.4). W h il e unem ploy men t has risensince 1998 fr o m 12 percent to 18 percent, the unemployment rate fo r each subgroup hasrema ined abou t the same. This situation suggests that as people mov e do wn to a low er groupthey take o n the unem ploymen t rate o f that group.Thus, total unemploy ment rises without a risein he unemplo yment o f each group.I t also suggests that many o f the new poor are wo rki ng atlow er incomes, and that unemploy menti s onlypart o f the cause of their p overty; the otherpart i sclearly lowe r incomes. Therei s no evidence that rising unemployment has led to lo wer laborforce participation (discouraged worker effect).I f anything, there has been a slight increase inlabor force participation among the indig entand moderately poor,but the increase i s onl y about1 percentage p oint compared w it h pre -crisis conditions (see TableA.2).

Anoth er important characteristics o f he poor are their large fami ly size andhighdependency rates. The average fam ily size fo r the indigent poo ri s 4.9, compared with 4.0 for themoderately po or and 2.7 for the non-po or (see Tab le1.4). As a consequence, a large number o fchi ldre n are poor. Thus, wh ile the overall pov erty rate rose fr om 29 percent to 53 percent overthe 1998-2002 interval, the pov erty rate fo r childr en (age0 to 14 years) rose fr om 45 percent to70 percent. Howeve r,i t s also useful to note that female headed households tend beless poorthan m ale headed households. But pov erty seems mo re related to lab or m ark et characteristics;not onlyi s the unem ploymen t rate o f the indigent po or mu ch higher than the non-poor (see box),average hours worked are also much low er; 29per week for the indig ent compared to 42 for thenon-poor. About 38% o f workersin ndige nt poor families wo rk less than 30 hours per week,compared to 2 6% among the moderately poor, and only 18% among the non-poor.Thus the poo rare poor not o nly because they unemployed, or emp loyedin ow paying obs, but because theycannot find enough work tofill a 40 hour week.

An impo rtant characteristic o f the poori s that in bo th good times an d bad, they face not

only lower income,but also mo re unstable incomes.Using panel data that al low a view bo thforward and backwards, we can estimate deviatio n fr o m mean incom eby inc om e class. Asshown in igure 1.3, the coefficient o f variation (CV)12 o f the poorest quintile hav e historic allybeen higher than those o f the upper qu intiles. Furthermore, the gapi s ncreasing, indicating thatthe income o f the po or has become mo re unstable and uncertain no wthan in he past, whi le theincome o f he richer groups has maintainedi t s relatively stability.In M a y 2002, the C V o f thepoorest group i s roughly tw ice that o f theupper incom e quintiles. W e also kn ow that poorergroups have m ore li mi te d capacities fo r consum ption smoothingby using cred it or savings.Hence, they face l o w and unstable incomes wit h littl e private means o f coping. Wh ilerisk andpov erty are related, there are differences. Edu cat ion seems to reducerisk, independent o f t sability to raise income. People wit h higherrisks includ e migrants, householdswith informal

lo owever, this conclusion derives fro m a pove rty estimate that does not allow for economies o f scale i n householdconsumption; that is , large families can realize economies o f scalein he consumption o f housing and utilities thatimprove their welfare over small families. Recalculations o f poverty with the introduction o f various scaleeconomy estimates indica te that overthe most feasible range for the scale economy coefficient large familiesarestill poor (seeH. Lee, Background PaperNo. 8).

Calculated fro m datain G. Cruces and Q. Wodon, Risk Adjusted Povertyin Argentina: Measurement andDeterminants. Back grou nd PaperNo. 2, Part 11.l2 he coefficient o f variation (CV )i s the standard deviation divided by the m ean.

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workers, and/or unemploye dand inactive workers. The elderly face lo w incomesbut also lo wrisks, probab ly because their incomes derive fr om more stable pensions.

0,700

0,600 --

0,500 -

0,400 -

To the extent that risk reduces welfare, one could convert data on variab ility in to a risk -adjusted measure of poverty. W ithsuch a measure, the gap between ri c hand poor w il l be greater

given that the poor have more variabilitythan do the poor. Fo r a discussion o f such adjustments,see Part 11, Background Paper No . 2.

-/

/

Figure 1.3. Coefficient of Variation of Hou sehold Income by QuintileGreater Buenos Aires, Waves 1995-2002

0,100 -

0,300

0,200

May 95 O ct, 95 May 96 Oct, 96May 97 O ct, 97 May 98 Oct, 98 May 99 Oct, 99 May00 Oct, 00 Ma y 01 Oct, 01 Ma y02

-Q1 - Q2 Q3 -Q4 -Q5

Labor Markets and Adjustment

The current crisis has created ma jor changesin he labor market,13and many o f thesechanges have impacted the poor adversely. Du rin g the con ve rtib ility period, adjustments tothereal exchange rate could only occur through deflation o f nominal wages andprices, because thenominal exchange rate co uld notbe adjusted and inflation could not beused to reduce rea lwages. As the country move d into a state o f increasing crisis, nom ina l wagesdid not fall, andlabor market a djustment tookthe fo rm o f steadily ris ing unemployment. Despitethe fact thatwages were more fle xib lein the inform al sector, such wage flex ibi lity was not s ufficient tomaintain full employment. R apid growthin the early years me ant that output g rowth exceededlabor force growth,and produ ctivity rose(see table 1.5). Du rin g the pe riod 1991-96,

productivity grew by 7.6percent per annum, and the employment elasticity was very lo w at 0.14.D ur in g 1996-98, employment grewat a record 5.2 percentper year, implyingan elasticity o f 0.6.But since the Tequila Crisis,the demand for labor has become even more pro -cyc licalin bothdirections. W it ha fa l l in output of 2.8 percentin 1995, emp loyment fe ll 2.9 percent, andunemployment reached 18.5 percent.

l3 . Kri tz ,Background Paper No. 4.

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Table 1.5. Growth of GDP, Employment, and Unemployment1994-2002

I Year Growth ra te of rea l Growth of G r o w t h ofGDP employment unemployment

1994 5.8 -0.5 34.9

1995 -2.8 -2.9 34.41996 5.5 0.9 21.41997 8.1 6.3 -10.01998 3.9 4.1 -7.41999 -3.4 .9 .72000 -0.5 0.4 12.5200 1 -4.4 -0.7 16.22002 -10.9 -1.1 18.8

1 2002* -10.9 -3.6 29.3*Excluding impact o fPlan Jefes.Source: INDEC (EPH), various years, as calculated b y Krit z.

In he post-convertibility

period o f2002, wit h a resumption ofinflatio n, real wages have taken moreo f the adjustment, and there has beena rela tive ly smaller increaseinunemployment. Outputi s estimated tohave fallen 11 O percent in 2002,whi le employment has fallen1.1percent (see Table 1.5). The smalldrop in employment may be to theimpact o fPlan Jefes, whi ch aloneemploys now 2.0 mi lli on people.WithoutPlan Jefes employmentwo uld have fallen b y3.6%, s t i l lrelative ly sm all when compared to the11% drop in GDP. Howe ver, there i ssome evidence t o suggest that asmany as 40% o f participants in PlanJefes were not in he labor force andunemployed before participatinginthe program. Hence, adju stingemployment figures to exclude PlanJefes may not be entire ly appropriate.

As noted in the PovertyReport o f 2000, form al sectoremploym ent tended to be relativelystable during the 1990s. Mos t o f theunemp loyment was generated b y theinformal sector or b y obs o f owerproductivity. However,in he present

Microeconomic L abo r Management : W ha t Hav e Enterprises

Done Since Devaluation?

A special survey of 200 leading enterprises reveals someinteresting facts about how enterprises have adjusted employmentand wages to the crisis, including the follo win g key points:

One out o f three enterprises reduced i t s labor force, althoug hthis tendency has decelerated in recent months.The average labor force re ductio n was17 percent.Practically al l leading enterprises took some actionin relationto wages. On average, general adjustments produced a 21percent increase over base salary. This includes the 100pesos decreed by the government, which alone representedbetween 8 percent and 10 percent o f base. This means that inleading enterprises the adjustment doubled the amountestablished b y the decree. But even so, i t represents h alf ofthe rise in consumer prices accumulated in the first threequarters.Seventy percent o f firms made adjustments on non-salarycosts. The most frequent measure was to reduce trainingprograms, but they also took actions that affected the incom eof employees: 50 percent reduced overtime hours and 31percent suspended them completely; 35 percent reducedbenefits such as cars, cellular telephones, and others; 33percent reduced pension plans and 19 percent suspendedthem; 32 percent lowe red rewards and bonuses and 15 percentsuspended them. Last, but no t least, three out o f fourenterprises suspended new personnel hires.

Seventy-nine percent o f layo ffs were m utually agreed upon.Only in 21 percent o f the cases was there a dismissal, or atermination o f the labor contract decided by the enterprise.This policy i s partly related to corporate image , but alsoreduced the size o f the severance paym ent that firms had toPay.

Source: Kri tz ,E. Background Paper No.4,Part 11.

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crisis jo b losses have been predominantin the formal sector. Between M a y 2001 and M a y 2002,825,000 jobs were lost, o f wh ich 9 0 percent werein he forma l sector and o f wh ich two-thirdswere salaried employees.

Year Month

1998 May

1999 May

2000 May

2001 May

2002 May

October

October

October

October

October

O f 14.3 m ill io n people thatare in he labor market atpresent (May 2002), on ly about5

m ill io n have stable14 employment; o f these 1.7 m ill io n belong to the pu blic sector. Private,formal-sector, salaried workers constitute about3.3 m ill io n people, or about a fourth o fthe totallabor force. I f one adds private-sector, non-salaried (self-employed) workers, the private form alsector employs about one third o f the labor force.At the beginning o f the crisis (1998)thesituation was different: unemp loyment was 9 percentage points lower, and the weight o ftheprivate sector in the labor force was 8 percentage po ints greater. Conversely, the inform al sectorhas grow n during the crisis, adding 170,000 employees between October 1998 and M a y 2002.

% Working between10-30Hours per week

% Working more than30 Hours 3er week

Indigent Moderate Non- All Indigent Moderate Non - Allpoor poor Urban poor poor Urban

Areas Areas

18.7 14.1 12.6 13.2 32.1 54.1 73.4 68.217.6 15.5 12.8 13.6 30.2 55.0 74.1 68.418.3 15.4 12.6 13.4 27.0 53.2 72.6 66.318.4 15.2 13.0 13.7 29.4 54.0 72.2 66.617.6 16.0 12.5 13.5 26.5 50.0 71.3 64.215.9 16.4 12.9 13.8 27.7 51.3 72.0 65.118.3 15.7 12.6 13.7 24.3 52.2 71.3 63.518.3 18.1 13.5 15.0 24.3 46.2 68.9 59.420.9 17.7 14.4 16.6 23.7 49.4 68.0 54.130.8 21.5 14.9 20.5 25.5 51.5 71.0 55.1

The growth of obsin he inform al sectorin this pe rio d was concentratedin short-termtemporary jobs offering l o w incomes. Wor k consists of a few months or days, follow ed b yperiods of short-term unemployment. This type o fintermittent w or k employs about 21 percent o fthe labor force. Thus, wh ile total inform al employment has risen, in formal,salaried employment

o f a long-term nature has fallen at the sametime. Hence, the current role o f the info rm al sectorhas reverted back to a more traditional one o f absorbing employment fr om the form al sector, andeven fro m stable employment w ith inthe info rm al sector.The most stable sector of employmentremains the public sector, o f wh ich about 15 percent of a ll householdsdepend in whole or inpart. This very stable source of employmenti s generally enjoyed bythe middle class, however,not the poor. O nly 6 percent o f a ll the public-sector employees belo ng tothe lowest 20 percent o fthe population.

These changes are more impo rtant fo r the poor than for the non -poor. O fthe 40 percento f the population wit hthe lowest incomes, 60 percent of the economically active workin the

info rm al sector; and ofthese, ha lf areintermittent workers.These two lowestquintiles account for 55percent o f theunemployment.Inaddition, poorer workerstend to be employed lessthan 40 hours per week,and the number o funderemployed has beengro wi ng steadily sincethe early 1990s.Atpresent, only about 26percent o f the indigentpoor wo rk m ore than30hours per week; the rest

l4 efined by Kri tz as formal sector workers with permanent labor contracts.

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are either un emp loyed or partia lly employ ed (see Table 1.6). Ev en amo ng the moderately poor,onl y about ha lf have full- time work . Furthermore, the numbers engaged fo r 10-30 hours havecont inue d to ri se over the past fiv e years (see Anne x T able A.7).

1,2071,2311,2531,1061,1041,1071,1251,1401,1561,148

769

M or e flexible real wages, wi th inflation,during 2002 probab ly has helped to limit theamount of unemp loymen t created b y the crisis.This outcome can be seen by looking at laborcosts and employm ent in different sectors. F or the who le priva te sector, between Decem ber 2001and September 2002, rea l labor costs (the rea l wage bill) fe ll 3 0 percent, or 6 percentage poin tsmore than the f al lin real wages. Alth oug h man y forma l sectorf i r m s increased nom ina l wages byeven mo re than the 100-peso increase decreed by the government, these increases fe ll short o fthe increases in prices (see Table 1.7). However, changes in real lab or costs and wage bills varygreatly by sectors. In commerce, fo r instance, sales fe ll 28 percent in comparison w it h a yearearlier, real unit labo r costs f e l l26 percent, and employment fel lby 11.5 percent. Thus, the totalwage bill e l l by 34.5 percent, a nd the lab or cost per peso o f sales is 9 percent lowe r than a yearearlier. Accordingly, wages and otherunit labor costs have become the m ain mechanism f oradjustment in he labor market, and account for the deceleration of unem ploymen t grow thin hethird quarter o f 2002. As shown in Table 1.7, rea l and nom inal wages for form al sector

employees were relativ ely unchanged after 1995 throug h2001, but show a dramatic dro p in2002. For inf orm al workers, nomin al and real wages show more flexibility,but this f lexibilitywas not s ufficient t o restorefull employment. As in ma ny other countries, i t s diff icult to reducenominal wages.

91 182779467964 1707664655625650363

Table 1.7: Average Wages - Greater Buenos Aires 1992-2002

199219931994199519961997199819992000200 12002

(A $ e r month, cc

Salariedworkers F ormal Inform al

total workers workersRea l (base = M a y2002)

772 840 634852 957 643893 1,016 644825 939 57 6808 935 543816 944 603825 970 573823 976 561813 979 529812 970 549616 769 363

;tant and c

C P I

82.2791.8695.84

100.29100.08100.73101.91101.15100.0799.84

118.17

rent prices)

Salariedworkers Form al Inform al

total workers workers

1,1091,0961,101

97295495795796 1960961616

Nominal

The L aw o f Economic Emergencyin January 200 2 suspended the right to terminateemployees with out ju sti fie d cause and doubled the size o f the applicable severance payment.Firms cou ld request a reductio n in he severance pay men t to 50 percent o f normali f hey couldprove to the Ministry o f Labo r that they were suffering fr om a lossof business resulting fr omeconomic conditions. H owever, A rticle 2 41 of the La bor L a w allows fo r the termination ofemploymentby mu tua l consent. In act, a survey o f 200 f i r m sreveals that this i s the preferred

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mechanism fo r terminations. The negotiated settlementi s usually 50 percent to -75 percent ofwhat i s norm ally requiredby law.

Whi le this meth od reduces lab or costs somewhat, and makes the system mo re flexib le,i talso tends to m ean that the safety net a fford ed b y severance paymentsi s uncertain and

negotiable. There i s currentlya draft lawin he Congress to severely res trict the application o fArticle24 1 in he future.

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CHAPTER

HOW THE POOR COPE WITH A CRISIS

Given the severity and depth o f the present crisis, ho w have poo r people coped wit h asudden change in heir income s? To better understand the dynamics o f the social and economicsituation, we carried out tw o surveys: one a survey o f ci v il society organizations(CSOs)workingwi th the poor, and the other a more quantitative surveyo f living conditions.

Impact of the crisis in Argentinean families - A Survey of CSOs.The study o f CSOs used consisted o f focal groups, in-depth interviewsand questionnaires

w it h ci v il society organizations, w it h these or anizations representing both thestructurally poorand organizations representing the new poor. I t was carried out in he m ost populated urbanareas o f the country: me trop olit an area o f Buenos Aires, Cbrdoba, Corrientes, Resistencia,Rosario and Tu cum iin (w it h reg ional representation).

This survey l ed to the fo llo wi ng observations:

The structurally poor are considered to be those wh o li ve in areas w it h deficiencies inpublic services, in basic social services and dw el l in sub-standard houses. The y have ahigher than average number o f child ren and have childre n at earlier ages. T he educationlevelo f the hou sehold members i s ow . Lab or force participation o f these groupsi sconcentrated in man ual tasks, w it h minimal qualifications andhigh labor instability,usually in he info rma l market.

Impoverished middle-class groups (or the new poor) l ive in neighborhoods w ith more

efficient p ubli c services, generally o w n their home and ma ny o f them have a car. Theyare characterized b y havinghigh education levels and qualifications. T heir situationchanged during the last decade due to the macroeconomic changes that to ok place, wh ichl e f t many o f hem unemployed.

An unprecedented characteristic o f the current crisi sin Argentina i s that i t has severelyaffected middle-class groups, and not on ly the struc turally poor, w ho had already beensuffering fr o m margin ality and pove rty for several decades.In a society l ik e Argentina,w i thhigh education levels, the presence o f a new grou p o f poor people-- constituted b ythose wh o tr adition ally h ad access to goods and to im portan t economicand culturalservices-- caused a major dom estic shock.

l 5 Methodological development o f the ERES team, based on the revision o f methodologies used in severalpublications o f the Bank, lik e Voicesof the Poor, E mpowerm ent and Pove rty Reduction, and other literatu reproduced by the Civil Society and Social Development team. Working withCSOs representatives allows us tocapture the social emergency f ro m a po intof view that, on one side, comprises the perc eption o f the segment as apo lit ica l actor, and, o n the other side, has better capacity o f conceptualization, synthesis and analysis of com mun ityand fami ly situations, and o f relationships with other institutions.

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In he face o f this crisis, the new poo r-- wh o were not used to resorting tosurvivalpractices -- developed d iffere nt strategiesto manage it, wh ile the structurally poorredefined th eir ro le before the state,but not in a massive w ay (e.g., theappearance o f the ppiquetero

movem ent agitating for laborprograms).

Impo verish ed middle-class groupsstate that they have suffered a majorreduction in heir incom e due to theloss o f hei r jobs and decreasedpurchasing power, and haveimplemented new forms o fgenerating incom e li ke tradingproducts an d services, orga nizin ginf orm al markets to s ell objects,starting home-made productio n andmicro-enterprises. Th ey have alsotried to put new members o f thehouseho ld into the labo r market.Other strategies inc lude com biningefforts w it h friends and/or fam ilymembers in order to purchase goodsb y taking advantage o f sales andwholesale prices, c hoosing moreeconomic brands, re placin g costly

Voices of the Poor -Argentina, 2002

F or the young people it is very hard and I guess it has todo with this, with the anger and toughness, theconfrontation with those who are killing them, and theydont know what this is about. I think the youth feelsdespair and that their lives are going be miserable, ortheir lives are going be just begging, stealing and whilethey go out on the streets, try ing to fin d some way to getquick money, but if they dont get anything theyll bekilled. You can hear this talk in a ll the young people al l thetime and its awful.

Jus t go aroun d the city of Resistencia. Before there were2 or 3 com ers w ith prostitutes but now we can see placeseverywhere and the saddest par t of this is that these areincreasingly younger girls in prostitution whogo into thisas a way to survive.

Before, you d idn t see that much violence. Now yousee itmuch more in young kids: they get high, ki ll and steal.Al lthis because there is nothing holding them back. I mdark,I myoung, I go downtown and I wind up in trouble.

Now there is even discrimination against you for yourskin color in the agencies that are supposed to help us.Even inside and outside your own neighborhoo d: even us tthe mere act o having a different haircut.

Insecurity results from no education, no work, no health,no housing. The government doesnt have any answers......because the govem ments a nswer is an iron hand.

non-essential products with cheaper ones, and increasing the development o f home-made

products.

Structurally poo r groups, w ho have been experiencin g unem ploym entand precarious job sfo r a lo ng time, have resorted to increased participation o f wom en and childreninsubsistence activities, l ik e cardboard col lec tion an d other strategies. Some companiesthat have gone bankrup t have gone ba ck in to business as cooperatives (constituted bytheir o w n employees about to be fired) o r as comm uni ty micro-enterprises managedbygrassroots organizations that inco rpora testaff financed by the Plan Jefes.

The structurally poor are increasing home-made pro duction fo r self-consumption(preserved fruit, bread, pasta and their own-pr oduc ed vegetables), and com mu nitypurchases in wholesale stores. Nevertheless, ev en ap ply ing these strategies, th ey hav e hadto adjust their consum ption o f basic products, e.g. redu cingmilk and sugar, and replacingmeat fo r soy, cereals, noodles or rice. Re gard ing access to services, these famili es m akeilleg al use of electric ity and substitute na tural gaswith bot tled gas and/or fir ewo od. T heyconsider that services are too expensive, partic ularly wh en their on ly inco me i s thesubsidy they get fro m thePlan Jefes.

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As the ne w poor are concerned, they ha ve experienced an increase in overdue paymentsand service cuts. In some cases, they resort to the use of deferred payment and controlledcons ump tion (e.g. in elephone, ele ctricity ) and their capacity to ho nor debts and creditshas declined. This brou ght about the loss o f goods li ke automobiles, real-estate proper tyand even o f fam ily homes. Likewise, the y have dropped recreational and cultural

consumption, li ke goin g to the movies, theatres, restaurants, bu yi ng books and traveling.Changes can b e seen in heir transport habits: cars are sold or lef t at home, w hi le the useo f publ ic transport, bicycles, motorcyc les and wa lkin g increases.As a result o f thesechanges, there i s a psychological impact o f perceiving themselves as be ing increasing lycloser to the poor sector. The new p oor find i t dif fic ult t o accept and acknowledgetheirnew situation, t o ask fo r he lp and reducin g expenses that were pre vio usly considered asindispensable, and to change their role by being forced to resort to charitableorganizations in wh ich they us ed to part icipa te as donors

I n the education area , the crisis affects both groups in different ways.

Stru ctura lly po or groups state that child ren hav e reduced school attendance due to thelac k o f school elements, shoes, clothes and means o f transport.16At the same time, themain reason fo r attending school i s the fact that th ey receive their m ea l there. Thesegroups ha ve troubles caused b y teachers strikes, because during those days children d onot receive the fo od thati s provided to themby the school cafeteria. They suffer fr o m thedisco ntinui ty and lack o f coverage of scholarship programs, the suspension o f whi chdiscourages teenagers attendance to school.

I t s getting increasingly dif fic ult for the impo verished middle-class groups to affo rd thefees o f private schools and to continu ewith Universitystudies. In some cases, Un ive rsi tystudies are dropped in order to enter the lab or market. N e w alternatives o f educationservices arise among groups o f parents, friends and neighbors. M o re usei s made o f

popular libraries.

I n th e health area , the situation seems to be even more serious.

Issues related t o the deterioration o the quality oflife arise among the structurally poor,especially poor nutrition: malnutritioni s ncreasing in chi ldre n and adults; there i s a newoutbreak o f diseases that had been eradicated, li k e tuberculosis, hep atitisB and dengue.The situation o f children, elderly people an d terminal patientsi s extremely precarious andvulnerable. As access i s concerned, the impos sib ility o fgetting hosp ital attention hasincreased due to the la ck o f mon ey to affo rd means o f transport. La ck o f resourcesprevents patients f ro m fo llo wi ng treatmentsand obtain ing prescribed medicines.Hospitals also lack medicines, elements an d sufficient equipment t o meet the newdemands. Free access to contraceptives has also de cline d (in the few p rovinces wherethiswas implemented), causing an increase in abortions and hinder ing preventive care.

The impact o f he crisis on thenew poor struck in he changes of forms of medicalcoverage o f hese families, li ke changing fr om pre-paid medical services t o a social

l6 owever, this i s not borne out by the data, which show no declinein school enrollments (see Chapter 3).

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security system, orfull coverage pre-paid services to others w it hless coverage, whichimplies a deterioration in he quality o f the service; on the otherhand, the number o ffamilie s w it h n o medic al services because they have lost theirregular o b and cannotafford the cost o f a pre-paid service has increased, w it h the consequent gro wi ngdemandson pub lic hospitals. Me di ca l visits have been minim ized, and cheaper medicines are

bought. As w ith the poor groups, they cla im that therei s

a reduction in ree access tocontraceptives.

I n general, CSOs point to an increase in comm unity violence and social conflicts.

The structurally poor m ention an upsurge of violence related to robbery and insecurity.They have witnessed an increase in polic e abuse and impu nity, especially youthpersecution. Systematic vio lation o f c iv il rights, as w el l as ethnicaland socialdiscrimination,go along wit hthe growing process o f pove rty criminalization. Ne w formso f protest and demand, such as picke ts (road blockades), t ak in g o f businesses andbuildings, preventing access to factories and pu blicbuildings, emerge and become moreacute, as they ai m at ob tain ing responses to emergency issues. A m ongthe new poor, thegro wt h of crim e rates fosters fear and insecurity,rising th e concern over crimes againstproperty. Conflicts escalate, because o f the new situations and li vi n g conditions. Am on gbo th groups, there i s a stronger commitment (both femaleand male) w ith c iv il societyorganizations (CSOs)arises, as ma le participation in comm unity activitiesbuilds up, dueto the Plan Jefes. The new poor have started to pe rform comm unity w ork,make claimsas consumers and take part in demonstrations and protests that they ha d ignore duntilthen.

Th e crisis has a strong impact on fam ily composition and on the trad itiona l fam ilymodel.

In a l l groups, these changes occur because o f mig rations to cities and ru ra l areasin searcho f new sources o f income, as w el l as due to regroupings o f fam ilymembers who, nowunemployed, go back to the fam ily home to live, wh ich worsens overcrowding andpromiscuity conditions.The crisis o fthe traditional fam ily mod elbrings about a changein he division o f labor b y gender. Therei s a redefinition o f rolesand duties both inhouseholds and in he public field. At home, women strengthen their ro le as heads ofhousehold, weakening the traditional rol e o fmen as fa m ily chie f and support.In thepu bli c sphere, wom entake part in CSOs and in he new forms of polit ica l participationsuch as pickets, assemblies, po t banging (cacerulazus) and demonstrations. As a result,new conflictsemerge, breakingup fam ily u nion and demeaning the image ofparentsbefore their children. Within families, there i s an increased sense o f fear and impotence,specially overthe situation o fth e you th concerning theloss o f future projects, whi chdeepens despair and pessimism. C hi ld and teenage pregnancies increase, as we ll asinfantile prostitution.In radit iona lly poor groups, violence translates int ofights,aggressions, separations, battered child ren . In most cases, violence i s directed to wom enand children. Inter-generational co nflict s andthe impossibil i tyof control o f youthincrease. Impoverished middle-class groups witness g ro w in g rates o f aggressions,

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no t surprisingly, to have avoided to a greater extent such changes.This i s partic ularly truein thecase of food, where the difference between incomequintiles i s striking. Second, the substitutionfo r cheaper products (or second-hand products when available) appearsto be mo re pervasivethan reductions in consumption levels.In other words, the info rm atio n suggests that familieshave tried to shield the consumption of fo od as mu ch as possibleby reducing the consumption o f

other goods and switching to less-expensive products.The lower-income groups, notsurprisingly, appear to havebeen less successfulin doing so.

Changes in consumption patternsFood

Reduced consumptionSubstituted for cheaper products

I I1 I11 I V V Total

90.4 83.1 73.2 69.0 59.1 74.997.6 95.4 92.5 91.5 84.8 92.3

Substituted for cheaper productsPurchased second hand products

90.5 87.7 81.5 76.8 68.389.5 89.3 80.4 80.2 76.651.7 40.2 34.8 33.0 24.3

81.083.236.7

Dismissedheduced he use domestic services*

A ques tion that deserves particu lar attentioni s whether there i s any evidence o f increasedschool dropout rates as a result o f the economic crisis . Tab le 2.2 looks at three age groups: 6-12,13-15, and 16-18 years. The second colu mn provides ro ugh estimates of coverage rates fo r eachgroup, with ou t any reference tothe level o f schooling.With a ll i t s limitations, these data confir mthe rates trad ition ally observed through household surveysand do no t show signs o f reductionsin coverage rates.

43.0 27.8 40.5 37.9

We have further analyzed whether there are any indications o f dropoutsduring the f i r s tmonths o f the current school year among those children rep orted not tobe at school (that is ,those not include d in column two o fthe table). Household heads were asked whether someoneinthe household (without ide ntifying whoi t was2') had either dropped out o r postponed startingschool. The third co lum n reports the percentage of ch ildrenin he age group that are no t inschool and belong to a familyin which therei s at least one member that droppe d out orpostponed starting school. O f course,this mightbe overestimatingthe presence of dropouts t othe extent that there i s more than one household member who had dropped out or postponedstarting school (includ ing higher education),and in hat sense i t s an estimate o f the ma xim umpoten tial size o f the effect.The f i r s t thing to noticei s that, given the very smallnumber o f casesinvolved , the estimatesare not sufficie ntly precise (thatis , they have a high coefficient of

variation).

lowest quintile derived from the 1997 consumption survey, we estimate that the cost of li ving for the poorest groupsin society increased 45 percent during this period.* This avoided a 'finger-pointing' effect that might have led to underreporting of cases of dropouts at the expense o flosing information on exactly which member of the household was involved.

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Age group

13 to 15 years16 to 18 years

6 to 12 years

Taking this int o account, i t s apparent that there i s no evidence o f ncreased dropout ratesfor childrenin he 6-12 o r 13-15 age brackets. Fo r the 16-18 age bracket, the estimated dro poutrate i s about 2 percent o f the age group, but the calculation i s no t statistically significant.Look ing atthe distribution o fthis latter group, over ha lf(54 percent) were foun d to come fro mthe lowest quintile.

Goes to schoo l (% o f a ll in group) Dropo ut estimate

Tota l areas Urb an area Rur al area Tota l areas

97.0 97.3 92.1 0.292.5 92.5 90.9 0.680.2 81.1 60.1 2.3

The lim ited evidence o f children dropping out o f school as a result o f the crisis couldindicate that families try veryhard to protect what i s perhaps the most import ant type o finvestmen t they can make for their childre n even under dif fic ult circumstances.In addition, withreduced opportunities in he labor market, the incentive to remove children fr om schoolso theycan wo rk i s reduced. In addition, as noted above, schools provide a source o f oo d fo r childre nthrou gh feedin g programs. How eve r, as evidence fr o m other crises suggests, such negativeeffects might not be f e l t immediatelybut rather, might be felt several months after the beginn ingo f the crisis (for example,might be reflected in enrollment rates in 2003).

Substituted private school for public one

Reduced purchase o f school materialsTurned to cheaper private schools

Another possible strategy i s to shift children fro m private to public schools. However,there i s it tle evidence f ro m the survey data (see table 2.3), wh ich suggests a resistance to m akesuch changes even in he context of a sharp economic deterioration(this contradicts theconclusions o f the focus g roup discussions).A very large proportion(72 percent) o f hehouseholds reported reduc ing the purchase o f schools materials, w it h as yet unc lear effects on

the quality o f schooling. The effect was m ore pronounced among the poor,with almost 90percent o f the households in he lower-in com e quintil e reporting reductionsin he purchase o fschool materials compared w it h on ly43 percent in the highest-income group. The diffic ultie sexperienced by several province s in keeping up with spending leve ls suggest the presence o frestrictions on the supply side that ma y be mo re serious than those o n the demand side, at least atthis early stage o f the process.

2.03.1

71.9

Table 2.3. Adjustments in Education Expenditures(% o f households)

In he case of h ealth services, there i s evidence o f severe negative impacts as o f early onin he year, bot h in erms o f diff icultieswithin the social health insurance and pu bli c healthsubsystems. The infor ma tion collected through the survey con firms the trends id enti fiedpreviously. Approx imately12 percent of the indi vidu als experienced some changein healthinsurance coverage. M o re than 60 percent o f those los t coverage altogether, mo stl y those in the

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lowest-incom e groups. F o r the approxima tely 40 percent o findividuals experiencing a change inhea lth insurance coverage, the movements were t ow ar d lesser coverage.

The loss o f nsurance coverage is leading an increasing number o f people to rely on theuse public hea lth facilities. O f hose households reporting to have substituted p ublic fo r private

health facilities as a reaction to the economic crisis, 60 percent have experienced some fo rm o floss or limitatio nin he coverage offered b y their health insurers. M o re spe cifically,16 percentlos t their insurance altogether,5 percent have outstanding bills that do not al low them to usetheir insurance coverage, 13 percent cannot aff ord the co-payments,8 percent experienced areduction in services covered b y their insurer,and 13 percent are retirees ex erien cingdifficultieswith the services offered b y PAM I.(health program f or retirees)2p

Overall, the survey fo und that families have,in one way o r another, cut do wn on healthservices as a result o f the economic crisis. Alm ost 23 percent o f he households reported that atleast one mem ber experienced lack o f access to h ealth services. Three-fourths o f those reportedthat the reason was lack o f money to pay fo r medicines(44 percent), transportation costs (26percent), and fees (5 percent). M o re specifically, 37 percent o f he householdswith childrenunder the age o f 12 reported having reduced the frequency wi th w hic h they take their childrenfor m edical checkups. A lmo st 45 percent o f those belong to the lowest quin tile o f the incom edistribution.But this effec t was also feltin he second (29 percent) a nd third (18 percent) deciles.

Anot her c oping strategy that households ha ve adoptedi s to cut back on the use ofutilityservices, or to delay paymen t thereby effectively consum ing on credit. Overall, residentialconsum ption of these services has fallen b y 10% since the onset o f the crisis. Furthermore,between 30% and 50% o f the households reported delay ing payments. Th e percentage o fhouseholds rep orti ng be ing cut of f fo r non-payment (electricity, gas, water, telephone, cable,internet) range fro m 2 % percent(in the case o f water supply) through 10% (for electricityandfix ed lin e telephones)up to 14 percent fo r cable. Disconne ctions are concentratedin he lowerquintiles o f the income distribution, wi th between 20% and 25% o fi r s t quintile householdsreporting that they hav e been disconnected fro m ele ctricity and telephone. Nonetheless, thedisconnection statistics do no t tel l the who le story. Alm os thalf o f first quintile households wh oreport hav ing been disconnected fr o m the electricity service fol lo wi ng the crisis, say that theycurre ntly ha ve access to the service, suggesting that t heymust subsequently hav e becomereconnected, alth oug hi t s no t clear whetherthis i s through lega l or ille gal means.

Sim ilar ly, households have tended t o substitute less-expensive means o f ransportation, asshown in able 2.4. M or ethan ha lf the households previouslyusing on ly pu bli c transportationnow report havin g increased the use o f a bicyc le orsimply walki ng; fo r the poorest householdsthe figurei s signific antly higher. These figures are consistentwith those emerging fr om theoffic ial data on the use o f pub lic services that indicate, f or thef i r s t five months o f he year, a 22

percent reductionin he nu mber o f passengers on urban railways, a9 percent dro p in subway use,and a 14 percent decrease in use o f metro politan bus services.A similar switch f ro m cars andtaxis to pu blic transportation i s observed as well.

21 PA M 1 s the national health insurer fo r retirees.22 These statistics are collected monthly b y I N D E C and constitute the basis fori t s Indicador Sinteticode ServiciosPublicos (ISSP, Indicatorof Public Services).

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Table 2.6. Changes in Labor Market Status(October 2001-July 2002)

Unemployed

I Previous status I

1000s 1,435 1,228 15 55 5 3,233% 50.6 6.2 0.2 17.1 9.9

-

1Unemployed I Inactive I Total 1

Wo rkin g more hoursi s another strategy follo we d by al l income groups. However,i t endsto be mostlysalaried workers in permanent jobs w ith a particular concentrationin commercewh o appear to succeed in this effor t to increase the hours o f work.In para llel w it h these changesin employment strategies, i t s possible to observe a tendency to substitute leisure for in-homewo rk as a way o f coping wi ththe crisis. Ap proximately60 percent o f the households report thatthey have increased the time allocated to the preparation o f home-produced goods (for example,food) to substitute for purchased goods. As shown in table 2.5, the lowest-income groups hea vilyus e this strategy (home manufacture).

The survey also inquired as to whether a hous ehold member had m igrat ed since October2001 or i f someone in he household i s considering that option. O n average, a li tt le over4

percent of the households reported ha vin g at least onemember wh o migrated, a percentagedistributed more or less evenly across the incom e d i ~ t r i b u t i o n . ~ ~he m ain reasons for migrationincluded lack o f work (58 percent) and seeking abetter quality o fl i f e (15 percent). M or e than20 percent of the households reported that at least one fam ilymember i s considering m igrating.The k ey o ption being considered (80 percent o f the households)i s mig ratin g to another country,particularly w ithi nthe highest-income groupsin the c ity o f Buenos Aires.

Since the beginning o f the crisis alarger prop ortio n o f the households areusing theirsavings, selling assets, or bo rro w in g as a means o f smo othing consu mp tion (table 2.7). Perhapsthe most interesting fact to noticei s how low-inco me householdsrely on the use of informalcredit at neighborhood stores(compru a l f iudo)whereby payment i s delayed. This copingstrategy i s used b y 15 percent o f the poorest families,but only 1 percent o f the upper quintile.

24 This excludes those migra ting as a result o f marriage, sickness, or other fa mil y reasons.

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Quintiles

Us ing savingsBorrowing from banks

Sel ling assets

Purchase with delayed payment

Social Netw ork Strategies

I I1 I11 I V V Tota l

5.9 3.7 3.3 2.7 1.1 3.32.8 3.5 4.0 8.0 5.6 4.80.9 3.6 1.8 0.6 2.0 1.814.6 13.1 9.5 2.3 0.7 8.0

Table 2.8 summarizes some o f the key indicators o f use of social networks b yhouseholds. O verall, w e observe that more than one-third o f the households

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