Abstract
Using urban household surveys, we constructed a panel dataset to study the effects of the Argentine macroeconomic crisis of 1999-2002 with the aim of (1) identifying the most vulnerable households, (2) investigating whether employment in the public sector and government spending served to decrease vulnerability, and (3) understanding the mechanisms used by households to smooth the effects of the crisis. Households whose heads were male, less educated, and employed in the construction sector were more vulnerable to the crisis, experiencing larger-than-average declines in income and higher dispersion. Households whose heads were employed in the public sector were more protected from the crisis, although higher public spending did not serve to decrease their vulnerability. A significant source of vulnerability was linked to changes in employment status, and we studied the determinants of the probability of being unemployed and of becoming unemployed. Last, we found that households were unable to perfectly smooth income shocks. Given these results, there is room for broadening social safety nets, particularly in the form of public works programs.
Highlights
Macroeconomic shocks can have significant effects on the welfare of individual households
This may be relevant for urban households, The labor market can playa crucial role in transmitting macroeconomic shocks especially to the most vulnerable, as they are likely to derive a larger share of their income from employment2 Rigidities in the labor market can amplify the effects of macroeconomic shocks
This paper addresses the effects of the macroeconomic crisis on household welfare in Argentina during 1999-2002
Summary
Macroeconomic shocks can have significant effects on the welfare of individual households. Macro shocks leading to higher domestic inflation can have a relatively large impact on the poor, given that they often lack real assets to hedge against inflation and their wages are defined in nominal terms, translating into declines in the real purchasing power of their income, A real exchange rate depreciation may have a favorable impact on households employed in the tradable sector, but can hurt those employed in the production of nontradables through, for instance, fewer investment opportunities and lower demand for labor. Poverty increased from 38.3 percent to 52.2 percent between October 2001 and May 2002;8 unemployment reached an alamling 21.4 percent in May 2002; 9 and income inequality, as measured by the Gini coefficient, 10 had risen from 0.53 to 0.57 by May 2002
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