the impact of transition on well-being

The Impact of Transition from Plan to Market onSubjective and Objective Well-Being

Lukas Kleine-Rueschkamp1, Sergei Guriev2, Francesca Dalla Pozza2,Alicia Adsera3, Elena Nikolova2

1Oxford U., 2EBRD

3Princeton

December 6, 2016

Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 1 / 41

Introduction

Outline

1 IntroductionMotivation

2 Data and Empirical Strategy

3 ResultsImpact of transition on height and life satisfaction - LITSPlacebos and Robustness ChecksHeterogeneous EffectsEvidence from Russia

4 Conclusion and Next stepsConclusion


Introduction Motivation

Post-communist transition

Systemic transformation in 30 countries with population of 400 millionpeople

Huge socio-economic shock but the impact on well-being is not clear:

Markets were supposed to start functioning reasonably quickly, henceimproved access to consumer goodsWhile the GDP fall was substantial, consumption did not fall as muchand started to recover almost right away

Widespread perception of substantial deprivation in early years of transition

But was the pain perceived or real?

If there was an effect on well-being, was it transient or persistent?



Why do we care about impact of transition?

Macroeconomic performance of transition has generally beenconsidered a success Performance

Except for war-affected countries

And especially in democratic countries (Democratization is of courseendogenous)

Are there long-term implications of the transformationalrecession at the individual level?

Important beyond transition:

The impact of institutional reforms in transition countries helpsunderstand social cost of structural reforms in developed anddeveloping countries

Hence the resistance to reforms and reform reversals



In this paper

We measure the impact of transition on objective and subjective well-beingand attitudes at the individual level

We trace the long-term impact of early transition (”fossil research”)

People facing hardship at the age 0-2 are likely to grow up shorter:

Check cohorts born around years of transition (age 0-2)These cohorts have finally grown up!

People’s beliefs are shaped in their “formative years” (age 18-25)

Check cohorts facing transition at the age of 18-25

Dependent variables: Height, BMI, Life satisfaction, trust, attitudes toredistribution, market and democracy



Preview of the Results

Individuals born around transition are on average almost 1 cm shorter

However, they are 14 percentage points more likely to be satisfiedwith life (and better educated)

Heterogeneity: effects are driven by less privileged households

lower maternal educationlower maternal labour force participationgeographically: EEC and Russia

confirmed with various alternative identification strategies

Attitudes: more supportive of market and democracy



Related Literature

1 Height1 80% genetics, 20% environment (Steckel, 1995). Key period: age 0 to

22 adverse conditions may cause stunting (Li, Manor, and Power 2004;

Saenger et al. 2007), gains in height via early life conditionsimprovements (Case 2001; Duflo 2003)

2 Height and adult outcomes1 schooling attainment (Case et al., 2009), cognition (Case and Paxson,

2008), non-cognitive traits such as confidence (Persico et al., 2004)2 taller workers earn more (Vogl 2014, Case and Paxson 2008 etc.)3 screening device by employers (Sohn 2014)

3 Social capital and attitudes1 Recession experience: stock market participation (Malmendier and

Nagel, 2011), preferences for redistribution (Giuliano and Spilimbergo,2014), trust (Ananyev and Guriev, 2015, Algan et al. 2016)

2 Individual experience during transition: attitude towards privatization(Frye et al., 2009, 2012)


Data and Empirical Strategy

Outline







Data

Life in Transition Survey:

Third round in 2015-16

First two rounds in 2006 and 2010

51,000 households in 34 countries

29 formerly socialist countries (excl. Turkmenistan)Plus Cyprus, Germany, Greece, Italy, Turkey, use as comparatorcountries

75 locations per country

Including 50 locations covered both in 2010 and 2016extensive household survey



Additional dataset on Russia

Russian Longitudinal Monitoring Survey

Panel 1994-2014

Includes the whole family, both adults and children

Can control for parental height

Can run within-family comparisons for siblings



Identification strategy, LITS

Difference-in-differences

Transition started at different times in different countries

We use the year of price liberalization:

1990: 9 countries1991: 3 countries1992: 6 countries1993: 6 countries1994: 1 country1995: 4 countries

Also use continuous measures of transition shockControl for birth-year dummies (and country dummies) or forcountry-specific linear trends, cluster at country level (or PSU level)

Placebos



Identification strategy, Russia

Same timing of transition

But respondents are interviewed in different yearsHence can also control for age

Families including both adults and children

Can control for parental heightCan compare siblings within family

Sufficient number of observations to address endogenous fertility viamatching



Empirical Strategy

Main specification for height:

Y icy = αc + β ∗ BornTransitioni + γ′Xi + δ ∗ Year i + θ ∗ Trendcy + εicy (1)

Specification for attitudes and life satisfaction:

Y icy = αc + β ∗ BornTransitioni + γ′Xi + δy + εicy (2)

where:

Y icy - outcome of individual i in country c and with birth year yBornTransitioni =1 if individual i was born during transition or shortly beforeXicy - Individual level characteristicsYear i - birth yearαc - country fixed effectsδy - birth year fixed effectsTrendcy - country-specific linear trends


Results

Outline






Results Impact of transition on height and life satisfaction - LITS

Impact of transition on height



Impact of transition on height



Impact of transition on height: Speed of PriceLiberalisation



Are those cohorts less satisfied with their lives? No

Form


Results Placebos and Robustness Checks

Placebos and robustness checks

Placebos

Cohorts born after transition are similar or taller AfterTransition AfterTransition2

No effects in non-transition countries

No effect of any specific year (e.g. Berlin Wall 1989 or collapse SovietUnion 1991) PlaceboBerlin

Robustness checks

Robust to inclusion of year fixed effects and country-specific lineartime trend RobustFct

Migration? We can rule out internal migration


Results Heterogeneous Effects

Heterogeneity

Urban: Availability of food?

Ethnic minorities: No impact for born in transition

Less support for markets and democracy as well as less trust forformative years

Gender: Positive effect on life satisfaction is driven by women

Underprivileged households:

parental education Education

maternal labour force participation Workforce



Heterogeneity: Maternal Education



Heterogeneity: Maternal Labour Force Participation



Which countries drive the results?

Primarily driven by Eastern Europe, the Caucasus and Russia

Once we exclude respondents from EEC & Russia, the effect disappears



Potential sources of selection

Effects driven by EEC and Russia

Concerns about selection and endogeneity:

endogenous fertility choices?do children born during transition come from different types of families?

⇒ closer look at Russia


Results Evidence from Russia

Robustness: Alternative Identification Strategies

Additionally, we can use data on Russia with even more information

data on entire familiesparental height datachildren included in the sample

⇓

Adult height

Children height-for-age z-scores

Within-Family regressions

Propensity score matching



Evidence from Russia



Matching



Results Russia

Impact of transition on height in stronger in Russia

Especially within families

But are Russians born around transition less happy?

No significant differenceIf anything, Russians born around transition are happier



Selection into Fertility?

How do families differ?

Any significant differences between parents?

educationoccupationother demographics

⇒ No, only around 1 year younger


Conclusion and Next steps

Outline






Conclusion and Next steps Conclusion

Summing up

Evidence that transition pain was real:

Huge impact of transition on heightSimilar to the impact of a war; is partially but not fully explained byGDPTransition’s pain was much more than just a recession

Pain seems to have been “transitory”

no lasting effects on subjective life satisfaction

But: underprivileged individuals more adversely affected bytransition

Those facing transition in their formative years still support marketsand democracy

Reflects excitement and high expectations in early years of the reform



Implications for other reformers?

The pain of transition was very large but eventually temporary

Very long but transition was a much bigger transformation than alabor market reform or a pension reform

Lessons for future reforms? need to make them less painful andmore inclusive

The potential losers of the reforms should be provided not just withone-off compensation but with the relevant skills to assure theiremployability in the future.

Yet, there is a risk of permanent effect through political economy

If adopt “short-term pain, long-term gain” approach, may end up withpopulist politicians to take over

These may destroy democratic institutions and will not be removedfrom office even if/when the initial pain of reform is overcome



Next steps and questions for the audience

Precise mechanisms: food provision?

Collapse of state institutions?

state pensionspublic employment

Exploit regional variation for Russia


Placebo 1-3 after transition

Back

Placebo 3-5 after transition

Back

Placebo: Berlin Wall and Soviet Dissolution

Back

Robustness: functional form

Back

Formative years:

Back

Height Satiation

Back

Macroeconomic Performance by Region

Back

the impact of transition on well-being

Economy & Finance