Argentina - Household risk, self-insurance and coping strategies in urban Argentina

Report No. 22426-AR Argenti na Household Risk, Self-Insurance and Coping Strategies in Urban Argentina October 16, 2001 Poverty Reduction and Economic Management Unit Argentina, Chile, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region Document of the World Bank  Currency Equivalents (As of September, 2001) US$1 = Peso$1 List of Acronyms EDS Social Development Survey EPH Permanent Household Survey GJBA Greater Buenos Aires LAC Latin America and the Caribbean NGO Non-governmental organization OECD Organization of Economic Cooperation and Development SINTyS Social and Fiscal National Identification System SIEMPRO System of Information, Monitoring and Evaluation of Social Programs UI Unemployment Insurance Vice President: David de Ferranti Director: Myrna Alexander Sector Director: Ernesto May Sector Manager: Maria Correia Sector Leader: Paul Levy Task Team Leader: Wendy Cunningham  Table of Contents EXECUTIVE SUMMARY ....................................... INTRODUCTION AND OBJECTIVES ..............................................................................................I1 MAIN FINDINGS .............. II POLICY DISCUSSION .............. VI 1. INTRODUCTION ...............................1 2. CONCEPTUAL FRAMEWORK .............................7 2.1 SOURCES OF RISK AND HOW THEY ARE TRANSFERRED TO THE INDIVIDUAL .7 2.2 STRATEGIES FOR DEALING WITH RISK .9 2.3 HOUSEHOLD TOOLS FOR RISK MITIGATION AND COPING .10 2.4 ACTORS TO COPE WITH RISK .13 2.5 GENDER, HOUSEHOLD STRUCTURE AND RISK .16 2.6 APPLICATION OF THE THEORY IN THIS REPORT .17 3. SOURCES OF ECONOMIC VOLATILITY AND IMPLICATIONS FOR THE INDIVIDUAL AND THE HOUSEHOLD ....................................... 19 3.1 SOURCES OF RISK ....................................... 19 3.2 RISK AT THE INDIVIDUAL LEVEL ....................................... 22 3.3 VULNERABILITY AT THE HOUSEHOLD LEVEL ....................................... 34 3.4 SUMMARY ....................................... 3 8 4. INSURANCE AND COPING STRATEGIES ....................................... 39 4.1 LABOR MARKETS .42 4.2 FORMAL MARKETS: UNEMPLOYMENT INSURANCE AND SEVERANCE PAY .52 4.3 INFORMAL INSURANCE MARKETS: SOCIAL NETWORKS . 56 4.4 FINANCIAL MARKETS: ACCUMULATION AND DEPLETION OF ASSETS .63 4.5 HOUSEHOLD ORGANIZATION .64 4.6 SUMMARY .67 5. CONCLUSIONS AND POLICY RECOMMENDATIONS .......................................................... 68 5.1 CONCLUSIONS ......................................................................................................................... 68 5.2 POLICY RECOMMENDATIONS .......................................................................... 68 6. REFERENCES .......................................................................... 79 APPENDIX I: DATA SOURCES .......................................................................... 86 APPENDIX II: REGRESSION ESTIMATES .......................................................................... 88 APPENDIX III: METHODOLOGY .......................................................................... 98 BOXES BOX 1: INTERNATIONAL EVIDENCE OF HOUSEHOLD CONSUMPTION SMOOTHING ACROSS RISKY PERIODS 3 Box 2: RISK MANAGEMENT, OLD STYLE ......... ................................................................. 8 Box 3: DEFINITION OF THE HOUSEHOLD ACTORS .................................................. ........................ 1 4 Box 4: WHAT "INCOME GENERATING ACTIVITIES" DO MEN AND WOMEN DO? ............... .......................... 46 Box 5: COULD ECONOMIC CRISES LEAD TO NEW GENDER ROLES? ........................................................... 47 Box 6: IS THE INFORMAL SECTOR IN ARGENTINA INFERIOR TO THE FORMAL SECTOR? ........... ................. 50 Box 7: THE ROLE OF THE FAMILY IN MEDITERRANEAN VERSUS OECD COUNTRIES ............ .................. 58  FIGURES FIGURE 1: PRIVATE CONSUMPTION GROWTH REMAINS BELOW GDP GROWTH IN ARGENTINA ................... 19 FIGURE 2: REAL WAGE VARIANCE - SQUARED NEGATIVE SHOCKS ONLY ................. ............................... 23 FIGURE 3: ARGENTINA REAL WAGE VARIANCE - SQUARED POSITIVE SHOCKS ONLY ........... .................... 24 FIGURE 4: LABOR FORCE PARTICIPATION RATES ......................................................................... 25 FIGURE 5: LABOR FORCE PARTICIPATION RATES, HEADS ......................................................................... 26 FIGURE 6: LABOR FORCE PARTICIPATION RATES, CHILDREN ................................................................... 26 FIGURE 7: UNEMPLOYMENT PROBABILITY ......................................................................... 27 FIGURE 8: UNEMPLOYMENT RATES BY SEX ........................ ................................................. 28 FIGURE 9: UNEMPLOYMENT RATES BY SEX, CHILDREN ......................................................................... 28 FIGURE 10: UNEMPLOYMENT RATE BY HOUSEHOLD STRUCTURE AND GENDER ............. ......................... 29 FIGURE 1 A: PERCENTAGE OF LABOR FORCE WORKING < 35 HOURS WEEKLY ............. ........................... 30 FIGURE II B: PERCENTAGE OF THE LABOR FORCE THAT IS UNDEREMPLOYED ............... ............................ 30 FIGURE 12: SECTORAL ALLOCATION BY SEX, AS A PROPORTION OF ALL LABOR FORCE PARTICIPANTS ...... 31 FIGURE 13: SECTORAL ALLOCATION OVER TIME (%) ......................................................................... 33 FIGURE 14: CHANGE IN HOUSEHOLD LABOR INCOME OVER ONE YEAR, CRISIS PERIOD .......... ................ 35 FIGURE 15: AVERAGE NUMBER OF JOBS HELD BY WORKERS ................................................................... 49 FIGURE 16A: RATIO OF FORMAL TO INFORMAL SALARIED WAGES ........................................................... 51 FIGURE 16A: RATIO OF FORMAL TO INFORMAL SELF-EMPLOYED EARNINGS ............... ............................ 51 FIGURE 17: MEAN HOUSEHOLD SIZE ......................................................................... 66 TABLES TABLE 1: REAL WAGE GROWTH VOLATILITY IS Low IN ARGENTINA (%) ................. .............................. 22 TABLE 2: UNEMPLOYMENT RATES BY DECADE(