Wednesday, February 27, 2008

Income mobility in Armenia, 1989-2006

The contrast of the society's well being today to that of the country's pre-independence is a recurring theme. Were people better off during the pre-independence years? Did the transition years make their lot worse? Have successive governments addressed the transition pains adequately? Equally relevant, at least during this political season, is how the evolving well being of the electorate translates into votes for incumbents and competing candidates.

To address this question, I took a look at the EBRD 2006 Life in Transition Survey to study perceptions of well being now and that enjoyed in 1989. The survey asks participants to rank themselves on where they fall in the income distribution in 1989 and 2006, from the poorest 10 percent of the population to the richest 10 percent. I converted these deciles into quintiles (20 percent) and reported the resulting mobility table below (observations with missing values are dropped -- about 4 percent).

Subjective ranking: income mobility between 1989 and 2006
..1989........... 2006 Quintiles .......
Quintiles ....1.. ..2.. ..3.. ..4.. ..5. All. Households
poorest 20% 26,7% 53,0% 16,9% .1,3% 2,1% 100% 267362
next ...20% .8,8% 27,7% 58,1% .5,4% 0,0% 100% 320140
next ...20% 10,5% 34,0% 44,0% 10,3% 1,2% 100% 506791
next ...20% 11,5% 42,3% 41,0% .5,2% 0,0% 100% 720929
richest 20% 18,5% 30,0% 36,6% 10,6% 4,3% 100% 229474
.... All... 13,6% 38,0% 40,8% .6,6% 1,1% 100% 2044696
Computed from the 2006 LiTS
household survey (see data page of to download)

A striking finding is that the majority of the poorest 20 percent in 1989, the first quintile, consider themselves to be much better off in 2006. Of these 267362 households, 53 percent moved to the next quintile; 2.1 percent moved all the way up to the top quintile, the richest 20 percent. At the other extreme, of those who considered themselves the richest 20 percent in 1989, 229474 households, 95.7 percent of them became poorer by 2006; 13.6 percent moved to the bottom quintile, the poorest 20 percent.

In short, the mobility picture that emerges from above is that those who considered themselves to be the richest in 1989 are now poor, while the lot of the poor has improved considerably. I have studied income mobility using panel data for countries other than Armenia (panel data don't exist for Armenia), but I have never witnessed such (1) "rank" reversal between the poor and the rich in the income distribution and (2) mobility (only 21 percent, the sum of the diagonal, did not change rank). Of course we don't observe income, and survey participants may not correctly rank themselves (otherwise we would have about 400000 households or 20 percent in each row, for a total of 2044696 households in the last column). But nevertheless, perceptions of well being are important and should not be overlooked.

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