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Life on $1 or $2 a day
Here is one summary, consistent with my research and travel experience:
1. "The average person living at under $1 a day does not seem to put every available penny into buying more calories...Food typically represents from 56 to 78% [of household spending]."
Despite this, hunger is common. Among the extremely poor in Udaipur, only 57% said their household had enough to eat in the previous year, and 72% report at least one symptom of disease.
2. "The poor generally do not compain about their health - but then they do not complain about life in general. While the poor certainly feel poor, their levels of self-reported happiness or health are not particularly low."
3. Spending on festivals - religious ceremonies, funerals and weddings - is high. In Udaipur, median spending on these by people living on $1 a day was 10% of income.
4. In several countries, the extremely poor spend about 5% of income on alcohol and tobacco.
5. In the Ivory Coast, 14% of people on $1 a day have a TV - and 45% of those on $2 a day have one.
6. Many of the extremely poor get income from more than one source. Cultivating their own land is not always the main source of income.
7. Participation in microfinance is not as high as you'd think. The poor seem unable to reap economies of scale, therefore.
Here is the underlying paper, by Banerjee and Duflo of MIT, highly recommended, hat tip to Michael Blowhard.
Here is one more controversial bit, I wonder what they see as the relevant alternative:
...it is easy to see why so many of them are entrepreneurs. If you have few skills and little capital, and especially if you are a woman, being an entrepreneur is often easier than finding a job: You buy some fruits and vegetables (or some plastic toys) at the wholesalers and start selling them on the street; you make some extra dosa mix and sell the dosas in front of your house; you collect cow dung and dry it to sell it as a fuel; you attend to one cow and collect the milk. As we saw in Hyderabad, these are exactly the types of activity the poor are involved in. It is important, however, not to romanticize the idea of these penniless entrepreneurs. Given that they have no money, borrowing is risky, and in any case no one wants to lend to them, the businesses they run are inevitably extremely small, to the point where there are clearly unrealized economies of scale. Moreover, given that so many of these firms have more family labor available to them than they can use, it is no surprise that they do very little to create jobs for others. This of course makes it harder for anyone to find a job and hence reinforces the proliferation of petty entrepreneurs.
Posted by Tyler Cowen on December 17, 2006 at 08:08 AM in Economics | Permalink
Comments
I'll confess I never thought I'd hear an argument that self employment and employing of one's own family makes it harder for someone else to find a job. That definitely falls into the "you can't be serious" category. So if they stop being an entrepreneur and look for a job instead, this helps others looking for work? I'll confess I don't get it.
Posted by: happyjuggler0 at Dec 17, 2006 12:14:25 PM
They are stuck in a self-sustaining eco-system. You have a situation where self-employment isn't really self-employment but rather a situation where the extended family operates as the main organizational device (rather than labor specialization). Hence, you have a situation where family connections rather than skills sets are the basis for 'employment' which result in no specialization, no economies of scale and poor utilization of human resources. Basically, you have a lot of people constantly jostling for subsistence work, and no mechanisms for the rationalization of work processes, aka growth.
Posted by: Dan Karreman at Dec 17, 2006 1:30:44 PM
The part about the low-complaint level is interesting.
Our troubles are necessearily measured by an absolute index, but they are relative to our environment.
Posted by: Ray G at Dec 17, 2006 2:02:22 PM
Do you think there's anything to the whole microcredit idea?
Posted by: Brian at Dec 17, 2006 2:03:48 PM
Vouchers anyone?
The reason [household education] spending is low is that children in poor households typically attend public
schools or other schools that do not charge a fee. In countries where poor households spend
more on education, it is typically because government schools have fees (as in Indonesia and
Cote d’Ivoire). What they are doing might therefore be perfectly sensible, given that this is the
reason why public education exists. The one concern comes from the mounting evidence,
reported below, that public schools are often dysfunctional: This could be the reason why even
very poor parents in Pakistan are pulling their children out of public schools and spending
money to send them to private schools.
Still want government ownership of the means of production (in education)?:
In countries where the public provision of education and in health services is
particularly low, private providers have stepped in. In the parts of India where public school
absenteeism is the highest, the fraction of rural children attending private schools is also the
highest (Chaudhury et al., 2005). However, these private schools are less than ideal: They do
have lower teacher absenteeism than the public schools in the same village, but their teachers
are significantly less qualified in the sense of having a formal teaching degree.
Ok, how about government ownership of the means of production in health care instead?:
One sees a similar pattern in healthcare but in a more extreme version. Once again
private providers who serve the poor are less likely to be absent and more likely to examine the
patient with some care than their public counterparts, but they tend to be less well qualified
Posted by: happyjuggler0 at Dec 17, 2006 2:21:10 PM
I don't think anyone living off $1 in udaipur is making dosa, and probably very few living off more than that.
Posted by: andrew at Dec 17, 2006 3:41:45 PM
Brian,
I see much good in microcredit.
But it is all too likely that my support of microcredit
through the Grameen Foundation biases my view.
So I appreciate the microcredit commentary and links
here at Marginal Revolution. They broaden my
understanding.
Mostly the postings here have strengthened my belief
that microcredit does good. Even when studies like
Banerjee and Duflo’s show me that doing it right must
be much harder than it appears in Grameen’s
descriptions of its own work.
John
Posted by: Shakespeare's Fool at Dec 17, 2006 6:31:40 PM
"You have a situation where self-employment isn't really self-employment but rather a situation where the extended family operates as the main organizational device (rather than labor specialization)."
But how much of that is caused by lack of institutions that make it possible to safely go into business with non-family members (property rights, contract enforcement, identity and credit records, etc.), a la de Soto? It seems to me that that would be a big impediment towards forming larger partnerships, hiring non-family employees, and achieving economies of scale.
Posted by: Jacqueline at Dec 17, 2006 8:12:30 PM
There are also cultural factors that work against going into business with non-family members. Even in some social subgroups within 1st world nations (the less integrated groups of Australian Aborigines for example), giving a job to be better qualified, rather than your cousin, is seen as wrong.
Posted by: Patrick at Dec 17, 2006 8:37:08 PM
The self-reported levels of happiness (as Sen and Elster and others have show) does put a pretty big dent in to the idea that preference utilitarianism of the sort used by most economists can really be a plausible approach. Preferences here are all revealed preferences and highly adaptive and as such a very poor indication of well-being.
Posted by: Matt at Dec 17, 2006 9:40:09 PM
I wonder how much of (2), the spending on wedding festivals and religious cermonies, is explained by life's next basic need after food and water?
Posted by: Henry Mein at Dec 18, 2006 4:07:14 AM
If you are wondering about the difficulty of the poor getting "regular work" rather than becoming "entrepreneurs" (typically doing so illegally and falling into the "informal sector"), the World Bank "Doing Business In" data will show the reason:
http://www.doingbusiness.org
Difficulty of Hiring Index- India: 33 US: 0
Rigidity of Hours Index - India: 20 US: 0
Difficulty of Firing Index - India: 70 US: 0
Rigidity of Employment Index - India: 41 US: 0
Hiring cost (% of salary) - India 16.8% US: 8.5%
Firing costs (weeks of wages)- India 55.9 US: 0.0
It is kind of crazy that a country that has such desperate poverty has tighter employment regulations than the US. Yet this is seen in poor country after poor country, even where people are starving to death. I suppose the governments feel it is better for people to starve than to have them risk being fired without receiving two months wages.
The OECD has recently counselled the Indian Government to liberalise business regulation by doing away with reservations for small firms, reducing tariff rates and easing labour laws for large firms.
Chief Economist of OECD, Jean-Philippe Cotis, said: "In India, the existing combination of greater competition and unchanged labour regulation is probably not sustainable. Indeed, it is putting pressure on many large employers to expand output through capital investment and reduce employment wherever possible, pushing jobs into the less productive informal sector."
http://www.hindu.com/2006/09/19/stories/2006091908701600.htm
Posted by: Mr. Econotarian at Dec 18, 2006 10:55:22 AM
"Spending on festivals - religious ceremonies, funerals and weddings - is high. In Udaipur, median spending on these by people living on $1 a day was 10% of income."
Maybe for all the secularists in the Western world, but 10% is not high for people who attend church somewhat regularly. Granted, we have higher disposable income, but Henry has a point.
Posted by: cb at Dec 18, 2006 11:14:10 AM
Matt, I'm confused. Are you saying:
(a) that the fact people self report as being relatively happy despite being "objectively" badly off means that self-reported happiness utilitarianism is untenable, and then conflating that with preference utilitarianism; or
(b) that the fact that poor people appear to spend their money on silly things (somewhat debatable) means that preference utilitarianism is untenable (in which case the self-reports are either irrelevant or cut against your case); or
(c) something else entirely.
Posted by: conchis at Dec 18, 2006 12:14:46 PM
How much to people with extremely low incomes spend on gambling?
Posted by: EclectEcon at Dec 18, 2006 12:39:52 PM
I suppose the governments feel it is better for people to starve than to have them risk being fired without receiving two months wages.
Based on self-reported happiness, this may be completely logical.
A person living on $2 per day (consistently) will probably report being happier than someone making $5 per day who is fired, and has to settle for another job that only pays $3 per day.
People value consistency and security, sometimes above absolute income.
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