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4 Who Are Ukraine’s Poor?

Editor(s):
Patrick Lenain, and Peter Cornelius
Published Date:
February 1997
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Author(s)
Jeanine Braithwaite and Tom Hoopengardner* 

This paper measures the frequency and depth of poverty in Ukraine, and constructs a profile of poverty using data f rom a household survey undertaken specifically for the World Bank’s poverty assessment. The quantitative measures of poverty and the poverty profile in this paper reflect the situation in Ukraine during summer 1995. Summer and early autumn are the best times of the year in terms of social welfare, since food is most readily available and household heat is not a problem. These seasonal factors mean that the quantitative poverty measures in this paper somewhat understate poverty and that some of the groups identified in the poverty profile are at times experiencing greater poverty than the survey revealed. The household survey was complemented by an anthropological study conducted during the winter—when food and heat increase household expenses—of 1995—96. (The household survey and anthropological study are described in Appendix I.) The paper goes on to consider transitional and structural poverty, and describes some of the ways in which Ukrainian families are coping with difficult economic circumstances.

Measures of Poverty in Ukraine

Poverty is an important aspect of economic well-being in any economy. It is systematically measured and monitored in most countries in the world, including high-income countries. Ukraine is behind other European countries, and even neighboring countries, in the analysis of poverty. A proposal for improved poverty monitoring is presented in Appendix II.

Box 1.Perceptions of Poverty in Ukraine

The households that participated in the anthropological study of poverty in Ukraine described themselves as either “poor” or “destitute.” The critical distinction is the extent to which basic human needs are met.

People who describe themselves as poor are able to obtain food, although they say that the worst aspect of their lives is not having enough to eat. After paying for food and housing and, if they can, for communal services, people who perceive themselves as poor report that they cannot afford clothing, medicine or education-related expenses without an extra infusion of cash.

People who describe themselves as destitute cite hunger as the worst aspect of their lives. Many of the destitute subsist solely on bread, milk, and tea. The destitute are small in numbers, but their situation is desperate. People who identify themselves as destitute tend to be those without a support network, for example solitary pensioners and young single people.

The quantitative poverty measures in this report are based on reported per capita consumption, rather than self-assessment. Yet self-assessment helps one understand what it means to be poor in Ukraine.

Most countries measure poverty in terms of monetary indicators, since poverty is generally thought of in terms of low expenditures or low income. Yet poverty is a multidimensional phenomenon, and monetary indicators of well-being do not cover all its aspects. Access to social services, health, and education are very important, for example. Statistics about poverty must be supplemented with an appreciation of how the poor live (Box 1).

In measuring poverty, it is useful to specify a level of per capita consumption1 below which households are considered poor—a poverty line. A poverty line can be used to monitor the magnitude and depth of poverty over time and to make comparisons among different subgroups in the population. The goal is to contrast people who are below the poverty line with those who are above it in order to develop insight into the causes of poverty and ways to alleviate it. How a poverty line is defined is partly a question of policy, and it can never be completely objective. The question is not whether a particular poverty line is correct in terms of some objective standard, but whether a particular poverty line is useful.

Once a poverty line has been defined, the poverty head-count index and poverty gap index can be calculated for the entire population and for subsets of the population.

The poverty head-count index (P0) measures the percentage of households (or individuals) whose per capita consumption is below the poverty line:

P0 = q/n,

where

Po = head-count index,

q = number of families (or individuals) deemed poor,

and

n = population size.

The head-count index is simple, but it is insensitive to the distribution of income below the poverty line—it does not reflect whether poverty is shallow (poor households tend to be only a little below the poverty line) or deep (poor households tend to be well below the poverty line).

The poverty gap index (P1) is the sum for all poor households (or individuals) of the percentage amount by which their per capita consumption falls short of the poverty line, divided by the population size.

where

P1 = poverty gap index,

Z = poverty line,

and

yi = the per capita income of poor household (or individual) i.

The poverty gap index reflects the depth of poverty—the extent to which the poor are well below the poverty line instead of close to it.

Before these measures of poverty can be calculated, it is necessary to define a poverty line. A collection (or “basket”) of consumption goods and services is selected and quantities are specified for each of them. When prices are assigned to each element in the basket, the total value of the basket of goods and services can be calculated. The value of this basket can then be compared with the value of per capita consumption of different households in order to define which ones are poor.

In most countries, the food items and quantities in the basket are based on nutritional requirements and content. An allowance is then added for nonfood items. This methodology requires resolving three issues. First, there may be disagreement on what constitutes an appropriate food basket. Should the food items be barely sufficient for survival, or should there be a margin above this? Second, should the food items be chosen in a way that minimizes their cost at a particular point in time, or should they reflect actual consumption patterns? Third, what rule should be used for the nonfood allowance—judgment by poverty researchers or observed behavior?

A detailed study of the food component of Ukraine’s Minimum Consumption Basket shows that it is more than sufficient for survival, and the food component of the Minimum Consumption Basket does not represent the lowest cost combination of foods necessary to achieve its nutritional content (Sahn and others, 1993a). However, it is “official,” and it has been tracked carefully over a long period of time. Therefore, the poverty line in the World Bank poverty assessment is based on the food component of the Minimum Consumption Basket.

The question then becomes how to derive a nonfood allowance. The nonfood allowance in the Minimum Consumption Basket seems to be based on the goods and services thought to be necessary for an adequate standard of living in Ukraine a few years ago. In fact, the economic decline of the last few years means that most Ukrainians devote most of their expenditure to food, and the nonfood allowance in the Minimum Consumption Basket no longer reflects actual expenditure patterns. Accordingly, the nonfood allowance in the poverty line in the World Bank poverty assessment is based on observed behavior, as explained in the next paragraph.

The value of the food component of the Minimum Consumption Basket was calculated as of June 25, 1995: Krb 3,069,000 a month. The value of per capita food consumption for each of the 2,024 families in the household survey, Ukraina 95, was calculated. Per capita nonfood consumption was measured for the 100 households whose food consumption was closest to Krb 3,069,000, and a geometric average was calculated of the ratio of food consumption to total consumption. The result was 83.5 percent. The poverty line used in the World Bank poverty assessment is Krb 3,069,000/0.835 or Krb 3,675,000 (about US$24.50) per person per month as of June 25, 1995. Based on this poverty line, the poverty head-count index was 29.5 percent of households and 31.7 percent of individuals in June 1995. The poverty head-count index for individuals is slightly higher than for households because poverty and household size are correlated, as explained in the section below on household composition and poverty.

By comparison, the poverty head-count index in Russia is slightly higher than in Ukraine—31 percent in 1994—yet the poverty line used in Russia, in physical equivalents, is slightly lower than that defined here. This means that poverty in Russia is somewhat greater than in Ukraine. Both countries have poverty head-count indices much higher than in Poland, 14 percent, which also uses a higher poverty line.

Many households are close to the poverty line as defined above, as illustrated in Figure 1. This means that a general increase in consumption, assuming no significant change in distribution, will result in a substantial decline in measured poverty. Table 1 shows that a proportionate increase in consumption of 10 or 20 percent would decrease the poverty head-count index by 18 or 34 percent, respectively. The point is that many Ukrainians will climb out of poverty if economic reform is successful in restoring growth.

Figure 1.Distribution of Households by Income Level

Table 1.Poverty Measures in Ukraine and Their Sensitivity1(In percent)
Baseline10 Percent Higher Consumption20 Percent Higher Consumption
P0: head-count index29.523.919.4
P1: poverty gap index (depth)9.67.86.0
Source: Ukraina 95.

Based on household data.

Source: Ukraina 95.

Based on household data.

The poverty gap index (P1), the measure of the depth of poverty defined above, confirms the impression that a relatively high proportion of Ukraine’s poor have consumption levels that are relatively close to the poverty line. The poverty gap index was 9.6 percent in mid-1995, as compared with 11.7 percent in Russia in 1994 and 13.2 percent for Poland in 1993. The reason the poverty gap index is important is that it distinguishes among degrees of poverty—a family that is barely below the poverty line adds only a little to the poverty gap index, but a family that is absolutely destitute adds a great deal. If policymakers rely exclusively on reducing the poverty head-count index (the percent of households or individuals below the poverty line), they might focus on policies that raise people just below the poverty line to just above it without having any impact on people that are well below the poverty line. However, the poverty gap index, by measuring the depth of poverty, concentrates attention on the truly destitute as well.

The concentration of households around the poverty line means that relatively modest improvements in the national economy have the potential to reduce poverty significantly. This could change somewhat over time when economic reform brings greater diversity to Ukraine. In the future, as the income distribution spreads out, a larger fraction of the poor might be concentrated further from the poverty line. Nevertheless, growth is and will remain essential to the alleviation of poverty in Ukraine.

Profile of Poverty in Ukraine

A poverty profile answers two kinds of questions: (1) of those households and individuals that are poor, what proportion belong to certain groups? and (2) what household and individual characteristics are highly correlated with poverty? Both sides of the coin are important, and the answers to these questions complement each other. A poverty profile can examine poverty on a household basis or an individual basis. Some factors affecting poverty (such as family composition) make more sense on a household basis, while other factors (gender or age) are more usefully considered on an individual basis.

Demographic Variables

Family Composition

The frequency of poverty in Ukrainian households increases as the number of children or as the number of elderly increases, as shown in Tables 2 and 3. Box 2 describes the plight of one family with a respectable salary but four children. Many households in Ukraine are multigenerational, with active adults supporting both children and parents. Head-count indices for households with both children and the elderly are especially high.

Table 2.Children and Poverty(In percent)
Number of Children Under 15 Years of Age in HouseholdPercent of All HouseholdsPercent of Poor HouseholdsPoverty Head-Count Index
0595327
1242632
2151734
3 or more3448
Total10010030
Source: Ukraina 95.
Source: Ukraina 95.
Table 3.The Elderly and Poverty(In percent)
Number of Elderly 65 Years of Age and Older in HouseholdPercent of All HouseholdsPercent of Poor HouseholdsPoverty Head-Count Index
0624923
1263134
2 or more122049
Total10010030
Source: Ukraina 95
Source: Ukraina 95

Box 2.Poverty Through Children’s Eyes

Sergei’s Krb 15 million (about US$80) per month salary as a military doctor might be sufficient to support himself and his wife Maria, but they must also support four children—ages 9, 7, and 6-year-old twins. They have only bread, butter, and tea for breakfast and supper and soup for lunch.

Sergei and Maria cannot save enough to buy clothing for the children, so the children share. In the winter, the children cannot all go outside at the same time, because they do not each have a coat. The older children endure humiliation at school because of their clothing. This kind of humiliation breeds low self-esteem, and it sets the stage for poverty that persists from one generation to the next. Maria is apprehensive about next year when the twins are scheduled to enter school.

A convenient way to combine these results about children and the elderly is to examine the relationship between the poverty head-count index and the dependency ratio, defined as the number of children under 15 years of age plus the number of elderly over 64 years of age divided by the number of adults aged 15–64. Table 4 shows that the poverty head-count index increases dramatically as the household dependency ratio increases. Note in particular the last line of Table 4. Most of the households in the “no active adults” category consist of one or two elderly people. These households account for nearly one-quarter of all poor households in Ukraine, and nearly 40 percent of these households are poor.

Table 4.Household Dependency Ratio and Poverty(In percent)
Dependency Ratio1Percent of All HouseholdsPercent of Poor HouseholdsPoverty Head-Count Index
0 (household consistsexclusively of adults)281516
0.25–1.00474931
1.25–2.0061044
2.25 and over1267
No active adults182439
Total10010030
Source: Ukraina 95,

Children are under 15 years of age; adults are ages 15–64; elderly are 65 years of age and older. The household dependency ratio is the number of children plus elderly divided by the number of adults.

Source: Ukraina 95,

Children are under 15 years of age; adults are ages 15–64; elderly are 65 years of age and older. The household dependency ratio is the number of children plus elderly divided by the number of adults.

Age

The household-based data in the preceding section demonstrates that age is an important factor explaining poverty after a certain point is reached. Data on individuals reinforce this picture, as shown in Figure 2. In Ukraine, the age-specific head-count indices tend to decline until about age 60 for both men and women. This finding contrasts with results from other countries. In Russia, in particular, the age-specific head-count indices decline for each successive age bracket, meaning that the older people are, the lower the poverty head-count index for that age group.

Figure 2.Poverty Head-count Index by Age Group

One of the ways in which retirees can contribute to the economic well-being of the households in which they live is by farming on personal plots. To do so, however, they must have a combination of land, health, and transportation. Even if retirees are in good enough health to farm a personal plot, and even if they have access to land, their efforts to contribute to household consumption may be frustrated by the limited reach, especially in rural areas, of the public transportation system. Many elderly are not capable of carrying kilos of potatoes several kilometers to the nearest source of transportation, and this may discourage people from farming personal plots. The importance of farming personal garden plots is discussed further in the section of this paper on coping mechanisms.

Although there is significant overlap between the elderly and old-age pensioners, conclusions about the elderly cannot automatically be applied to old-age pensioners. Only 61 percent of old-age pensioners are 65 years of age and older, and only 35 percent of old-age pensioners are poor. Programs that attempt to help the elderly poor by helping old-age pensioners in general are likely to be expensive and inefficient, because much of the money will go to individuals and households that are not poor. In order to help those elderly people who are poor, implementing a means-tested elderly allowance for people over 64 years of age (similar to the means-tested child allowance) may make more sense than attempting to use the earnings-related old-age pension system as a weapon in the fight against poverty.

Gender

In the future, gender may become a key variable in understanding poverty in Ukraine. For now, women have a slightly higher poverty head-count index (32 percent) than men (29 percent), but the differential is fairly small. This is largely the consequence of defining poverty in terms of household per capita consumption, which ignores the distribution of consumption within households. With poverty defined this way, differentials between men and women can only arise to the extent that women and men do not share the same households. To the extent that the poverty head-count index for women is higher than for men, it may be because there are twice as many elderly women as elderly men, and four-fifths of the elderly poor are women.

Households headed by women,2 excluding pensioners living alone, have a poverty head-count index of 29 percent, and account for 33 percent of all households. Single female-headed households are a small subset of this group (only 5 percent of all households); their poverty head-count index is 41 percent.

Location

Rural Versus Urban

In Ukraine, household survey data suggest that urban poverty is more frequent and deeper than rural poverty (Table 5). To a large extent, this reflects the importance of food that is produced on a household’s family plot. More rural households have plots (59 percent) than urban households (29.5 percent) or semi-urban households (11 percent), and the average size of rural plots is slightly larger than urban plots (0.33 versus 0.28 hectares).

Table 5.Location and Poverty1(In percent)
Location
TotalRural population

< 10,000
Semi-urban population

10,001–100,000
Urban population

> 100,000
P0: head-count index30272833
P1: poverty gap index109911
Source: Ukraina 95.

Based on household data.

Source: Ukraina 95.

Based on household data.

Yet to conclude that urban poverty is much worse than rural poverty may be an oversimplification. The nature of poverty in the two kinds of locations is different. In urban areas, the availability of food is undoubtedly the worst problem; poor urban households are food-poor. In rural areas, however, poor households are cash-poor. Buying bread, let alone clothing, winter heat, medicine, educational supplies, or transportation, may be out of the question. The rural poor are better off in terms of food, but the urban poor are better off in terms of everything else. Rather than draw profound conclusions about the quantitative differences in rural and urban poverty, it may be more useful to think of qualitatively different types of poverty (see Box 3).

Box 3.Qualitative Differences in Rural and Urban Poverty

People in rural areas tend to perceive poverty in terms of actual starvation—if they are not starving, they do not feel poor. Poverty defined this way reflects long-standing shortages of medical and educational services as well as acute shortages of all kinds of consumer goods in rural areas. Rural poor families who manage to produce a surplus of vegetables, meat, and dairy products often barter them for other goods. Yet certain necessities cannot be obtained by barter, for example, shoes, coal, school supplies, or transportation.

Urban respondents to the anthropological study looked beyond food to the quality and stability of housing, access to medical and educational services, and the possibility to partake of cultural events. Along with access to a garden plot, housing and communal service payments are by far the most significant factor determining how poor an urban family feels. Communal charges, the second greatest expense after food, are determined partly on the basis of the size of the apartment. Although a small apartment has the advantage of lower housing and communal services charges, it does not afford the possibility of using one’s housing to generate income by renting out a room, selling a larger apartment and moving to a smaller one, or engaging in informal business. Furthermore, overcrowding contributes to strained family relationships, and lack of space severely restricts a family’s ability to store food over the winter.

Regions

Overall, poverty is lowest in the south and highest in the east, reflecting the advantage of a more temperate climate in the south and the industrial slump in the east (Table 6). The regional differences in poverty have implications for the way social protection programs are financed—regional financing can lead to regional imbalances in benefits. Additionally, there may be some correlation among location, language preference, and poverty. Russian speakers tend to live in urban areas and toward the east, both locations with higher than average poverty head-count indices It is therefore not surprising that households that chose to be interviewed in Russian had a slightly higher poverty head-count index than those interviewed in Ukrainian.

Unemployment and the Working Poor

Households with unemployed members or discouraged workers (those who have given up looking for a job) experience poverty with greater frequency than the general population, although there are relatively few such households. Households with one or more members without a job during the previous month had a poverty head-count index of 41 percent, while 38 percent of households with one or more discouraged workers were poor. Although officially registered unemployment in Ukraine is low—less than 1 percent—real wages have fallen drastically and many workers report arrears in wage payments and involuntary part-time work and unpaid leave.

Table 6.Poverty’s Regional Dimension1(In percent)
RegionP0: Head-Count IndexP1: Gap Index
South2268
West3288
Central42910
East53512
All Ukraine3010
Source: Ukraina 95.

Based on households.

Dnepropetrovsk, Zaporazh, Nikolayev, Odessa, and Kherson oblasts and Crimea.

Kiev City, Kiev, Vinnits, Zhitomir, Kirovograd, Poltavsk, Sumiy, Cherkassiy, and Chernigov oblasts.

Volin, Trans-Carpathia, Ivano-Frankovsk, Lviv, Roven, Ternopol, Khmelnits, and Chernovits.

Donetsk, Lugans, and Kharkiv.

Source: Ukraina 95.

Based on households.

Dnepropetrovsk, Zaporazh, Nikolayev, Odessa, and Kherson oblasts and Crimea.

Kiev City, Kiev, Vinnits, Zhitomir, Kirovograd, Poltavsk, Sumiy, Cherkassiy, and Chernigov oblasts.

Volin, Trans-Carpathia, Ivano-Frankovsk, Lviv, Roven, Ternopol, Khmelnits, and Chernovits.

Donetsk, Lugans, and Kharkiv.

Some poor households may be described as “working poor,” since explicit unemployment is rare in Ukraine. Working poor households are those in which household members are working, but either have too many dependents to support them adequately, work in low-wage occupations, are subject to involuntary part-time work or leave without pay, are paid irregularly, or any combination of these factors.

Education

Education correlates inversely with poverty. Adults who reported that they had no primary schooling whatsoever had the highest poverty rate (47 percent), while individuals who reported completing higher education had the lowest poverty rate (20 percent) (see Table 7). Enrollment ratios seem to be falling in Ukraine, with more and more young people dropping out of school before completion. Future surveys should therefore try to study the relationship between education and poverty in greater detail than was possible in Ukraina 95.

Table 7.Education and Poverty1(In percent)
Educational LevelP0: Head-Count Index
Primary or less37
Incomplete secondary34
Secondary31
Specialized secondary and Incomplete higher27
Higher20
Total, all individuals reporting education30
Source: Ukraina 95.

Based on individual data.

Source: Ukraina 95.

Based on individual data.

Health and Disabilities

Poverty is inversely correlated with self-perception of health. Poor Ukrainians consider themselves to be less healthy than other Ukrainians consider themselves to be. Adults who reported that they were not sick in the previous month were less likely to be poor (28 percent) than those who reported illness (34 percent). However, households with a disabled member (who receives a disability pension) had a poverty head-count index (32 percent) only slightly higher than average (30 percent). Fewer than 8 percent of households had a disabled member. Future surveys should carefully investigate the relationship between physical and economic well-being, because the results could be invaluable in redesigning the Ukrainian health sector.

Housing and Consumer Durables

Poor households have somewhat less living space than average, and they report feeling crowded and concerned about the safety and habitability of their dwellings. However, as in most countries of the former USSR, household survey research suggests that the correlation between housing or ownership of most consumer durables and poverty is not very high. This is because under central planning, housing and consumer durables were allocated by nonprice mechanisms—usually a combination of queuing and favoritism. However, the anthropological study and other evidence suggest that there may be important differences, especially in the quality of housing, between poor and nonpoor households. The reason is that poor households tend not to have money to make repairs when they become necessary. Also, a clear difference between poor and non-poor households is that the poor cannot afford to repair consumer durables when they break. Many respondents to the anthropological study owned refrigerators or radios that did not work, for example. This means that living conditions in apartments occupied by poor people may be much worse than living conditions in apartments occupied by better-off families in the same building.

In some countries, it is possible to target social benefits according to neighborhood, or type of housing, because there is a very high correlation between these variables and economic well-being. If the differences are created by the inability to maintain housing, rather than by location or type of housing, then targeting in this way becomes very difficult.

Expenditure Patterns

Food dominated consumption in Ukraine in the summer of 1995 for two reasons. First, in-kind food consumption is extremely important. Second, the price of housing and communal services was extremely low. As a result, it appears that households spent most of their incomes on food, and the differences in consumption patterns between poor and nonpoor households are small (Table 8). Within the food category, bread and potatoes are very important in the diet of poor people. As total consumption and consumption of food products decline, families substitute bread and potatoes for meat and meat products, fruit, and other vegetables.

Table 8.Expenditure Patterns(In percent)
TotalPoorNon poor
Food83.686.482.4
Nonfood goods6.33.57.4
Housing and communal services4.45.64.0
Services2.51.82.8
Medical expenses2.42.22.5
All other0.40.20.4
Source: Ukraina 95.
Source: Ukraina 95.

Families that describe themselves as poor and destitute in the anthropological study now report that their primary concern is to find enough to eat. It is not difficult to find people in Ukraine who face grinding, unrelenting hunger, people who spend 100 percent of their resources on food, mainly bread, and still do not have enough to eat. Paying for housing and communal services, clothing, and medicine is out of the question for these people.

A massive increase in the prices of housing and communal services relative to wages and other prices that began at about the time of the household survey is now in progress. This is likely to have a significant impact over time on poverty patterns in Ukraine. As this change proceeds, it is vital to measure, monitor, and ameliorate its consequences for the poor.

Transitory and Structural Poverty

For some Ukrainian families, poverty is an intermittent phenomenon. As long as wages are paid on time, and as long as illness or other adversity does not strike the family, it is possible for them to remain out of poverty. Yet if there is a disruption in income or an unusual expense, the family may face a real crisis. Seasonal changes in the availability of food may cause some families to slide into and out of poverty. Just as many households are just below the poverty line and could be lifted out by modest improvements in their situations, so too are many households just above the poverty line and could easily slide into poverty if the general economic decline continues or if their individual circumstances deteriorate because of illness or other adverse events.

For some families, poverty may be an enduring and unrelenting fact of life. A high dependency ratio may mean that the family remains in poverty even when the wage earners are paid regularly, or there may be chronic problems that drain the household’s resources over a long period.

On the basis of only one household survey, it is impossible to measure the importance of transitory poverty relative to structural poverty. It is very important to make this distinction because the policies appropriate to each case are different. This argues for implementing the kind of poverty monitoring system described in Appendix II.

Coping Mechanisms

Informal sector activities are pervasive in Ukraine, and have increased markedly during the last few years (Johnson, Kaufmann and Ustenko, 1995; Yaremenko and others, 1995; and Wanner and Dudwick, 1996). The informal sector is now estimated to account for as much as one-third of officially recorded national income (Kaufmann and Kaliberda, 1996). The informal sector provides a means for accruing wealth for some, while playing a safety net function for many others.

From various studies, it seems that most households in Ukraine have some knowledge of or contact with informal sector activities (Yaremenko and others, 1995; Johnson, Kaufmann, and Ustenko, 1995). In the household survey and in the study by Yaremenko and others, households were asked if they had heard of various kinds of informal sector activities, and further, if any household members participated in these activities. Predictably, many more people acknowledged that they had heard of a given activity than admitted any sort of direct participation. This is hardly surprising, since many informal sector activities are illegal or quasi-legal at best, and therefore respondents are unlikely to be completely candid with interviewers. The anthropological study (Wanner and Dudwick, 1996) was able to evoke more discussion of informal sector activities with its more personalized approach.

People who are on forced leave without pay or involuntary part-time work, or who are being paid late or irregularly, simply cannot afford to remain idle. The single most important informal sector activity for coping with economic adversity is the cultivation of a personal plot of land to grow vegetables and possibly support animals. Three-quarters of households report growing some crops, and households with private plots have a poverty head-count index of 25 percent compared with 37 percent for households that do not have access to land.

Many people engage in petty commerce that has become known as “hustling” (krutit’sia).3 Hustling refers to the incessant motions of buying and selling, and also evokes the tremendous effort needed to work more than one job. Hustling is very difficult for many people who lived for decades under a Soviet system that disparaged entrepreneurship. Many Ukrainians view selling something at a profit as “speculation,” which they consider shameful or immoral. The ability and willingness to hustle is a key factor in determining who will fall into poverty and whether poverty will be temporary.

Sharing, borrowing, and lending can be an effective coping mechanism, especially for households in which economic adversity is seasonal, intermittent, or temporary. Ukraina 95 included several questions about these methods of coping with economic adversity. Poor households generally scored lower than nonpoor households in terms of net inflow of gifts and assistance from family, friends, or acquaintances. Poor households have less ability to offer hospitality and the resulting reduction in socializing means that poor households have smaller networks of help outside their families (Wanner and Dudwick, 1996).

To summarize, poverty in Ukraine has a strong demographic component, with families consisting of many children plus elderly supported by few active adults experiencing poverty with higher frequency than other families. Many “working poor” families will benefit directly from economic growth through the labor market. Yet significant numbers of poor (for example, those living in households consisting exclusively of one or two elderly people) will be heavily dependent on increases in social benefits that can only be achieved with comprehensive reform of the social protection system.

APPENDIX I

Background Research for the World Bank’s Poverty Assessment of Ukraine

Ukraina 95

The quantitative poverty measures and correlates in this paper are based on data collected in June 1995 by the Kiev International Institute of Sociology, under the direction of Professor Vladimir I. Paniotto. In the survey, 122 “primary sampling units” were chosen at random, and then 2,380 households were chosen at random from within those primary sampling units. Of these 2,380, 2,024 households participated in the survey, for a response rate of 84 percent. Data on income, expenditure, and household characteristics were generated by a household questionnaire for each household, an individual questionnaire for each adult, and a price questionnaire to measure prices at the times and places the questionnaires were administered. A detailed technical report about the survey is available from the Institute, and the raw data generated by the survey are available to responsible researchers. The survey is being repeated in 1996.

The strength of the household survey is that it permits the analysis of quantitative data about poverty based on a nationally representative survey, the first nationally representative survey of income and expenditure ever carried out in Ukraine. Over time, it will become possible to measure changes and trends by comparing the results of future household surveys with this first one.

Anthropological Study of Poverty in Ukraine

Social scientists conducted interviews with 500 poor households from October 1995 to March 1996 in five regions of Ukraine. Fifty interviews in each region were conducted in urban areas and 50 were conducted in semi-urban or rural areas, with the exception of Crimea where they were nearly all conducted in rural areas. Interviewees were selected because people in the community knew they were living in poverty; they were not selected at random. The interviews were semi-structured—interviewers followed an outline of subjects, but the questions were “open-ended.” Most interviews lasted more than three hours, and in some cases the interviewers and interviewees met several times.

The anthropological study’s strength is that it qualitatively delineates the social, cultural, and economic factors contributing to poverty in Ukraine today and identifies patterns suggesting which social groups are likely to experience poverty temporarily and which ones run the risk of becoming part of a permanent under-class. The anthropological study also provides in-depth case studies of how individuals who have experienced a severe decline in living standards are coping with poverty, and portraits of the members of the population who have become destitute.

The results of the study are summarized in Wanner and Dudwick (1996).

APPENDIX II

A Proposed Poverty Monitoring System for Ukraine

Ukraine spends about 18 percent of GDP on social protection, not counting education and health. Yet it is unclear to what extent the growing number of poor families in Ukraine benefit from social protection programs, or to what extent the various programs are well targeted at poor families. There is a need for a systematic approach to monitoring poverty and the incidence of benefits over time.

A poverty monitoring system for Ukraine could consist of a number of complementary elements. A “rolling” quarterly household survey of income and expenditure would make it possible to measure the incidence of social benefits and the impact of economic policy changes on family economic well-being both in the short term and over time. This survey could include special topics such as housing, education, and health every few quarters rather than every quarter in order to keep the questionnaire short and to speed up the time required for analyzing any one quarter’s results. The survey sample could be renewed gradually over time in order to provide some of the benefits of a “panel” study. (A survey of this type has now replaced the Family Budget Survey in Belarus.) Qualitative studies (like the anthropological study of poverty in Ukraine used by the poverty assessment) could provide insight on topics of particular interest from time to time. Administrative data, for example, from housing subsidy applications, clinics, and schools, could be systematically collected and analyzed.

Data from these various sources could be pulled together by the Council of Ministries in cooperation with the Ministry of Statistics, Ministry of Social Protection, and Ministry of Labor in an annual poverty report. Alternatively, the poverty report could be done by the Office of the Presidency or even by an appropriate committee of parliament. The annual poverty report could in principle supplant the UN’s annual Human Development Report and future World Bank poverty assessments. The data and analysis flowing from the poverty monitoring system would provide an objective basis for measures to strengthen the social protection system.

The creation and first five years of operation of the poverty monitoring system described here would cost less than US$5 million, or about US$1 million a year. This does not seem extravagant compared with Ukraine’s annual social protection outlay, which is between 15 and 20 percent of GDP. International financing and technical assistance are available.

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*This paper first appeared as Chapter 3 of the World Bank’s poverty assessment for Ukraine, Poverty in Ukraine, 1996, Report 15602–UA (Washington: World Bank, June 27).
1The poverty measures in this report are in terms of consumption, not income. Household consumption has been defined to include the value of food produced and consumed by the household, food items given to the household as gifts or drawn out of storage by the household, and goods and services received in payment for services rendered. Apart from the importance of “in-kind” consumption, survey respondents in all countries tend to disclose consumption much more fully than income, so that consumption data are a more reliable guide to household economic well-being than income data.
2A household is considered to be headed by the person who reports the highest income. A female-headed household is not necessarily a single-parent household.
3Literally, “krutit’sia” translates “to spin oneself.” In English, “to hustle” captures the spirit more accurately.

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