Determinants of Soviet Household Income

1. Introduction While a considerable amount has been written about income in the Soviet Union (SU), little microeconometric evidence exists concerning individual or household income determination. Here a data set that has been little utilized by economists, the 1990-1993 World Values Survey, is used to examine household income in the Soviet Union. Data were collected from approximately 1000 individuals in each of five Soviet regions from June-October 1990; about one year prior to Soviet dissolution. The data, described in more detail below, allow for an examination of household money income determination in these five regions. The empirical results indicate that certain patterns existed across geographic regions in the SU, though they also indicate that considerable differences existed as well. Further, while it is possible to find similarities with Western countries, the data indicate marked differences with Western household income determinants as well. The paper focuses solely on household income, though it is readily conceded that the link between consumption, material well-being, and income was likely quite different in the SU than in Western market economies. Further, while much may be inferred about relative household income inequality within the SU and between the SU and the West from the data and results, the primary focus here is on what determined relative standing in the Soviet income distribution as opposed to actual income differentials between "rich" and "poor." The data also provide some insight into income determination during the perestroika reform period. Thus the paper provides a bridge between much of the empirical evidence on Soviet income largely from the 1970s (see below) and the evidence that exists from the transition period in the former SU. The remainder of the paper is structured as follows: Section II provides a brief literature review. Section III describes the data and the empirical estimation methods. Section IV presents the results, and Sections V provides concluding remarks 2. Literature Review Bergson (1984) provides an extensive review of the literature regarding Soviet incomes through the early 1980's. As Bergson notes, much of the literature deals with income inequality--in particular comparisons with income inequality in Western market economies--and on saving in the SU. The savings literature generally focuses on so-called "forced saving" implying savings were accumulated due to a lack of outlets for disposable income in the form of consumption. As Bergson notes, studies of Soviet income inequality have been adversely affected by a lack of data. However, he concludes that the level of income inequality prevailing in the SU of the late 70's--early 80's was considerably less than that of the U.S. though comparable to that of Sweden. Bergson further notes that there have been considerable swings in the level of inequality throughout Soviet history. The literature on savings in the SU focuses on savings motives and whether or not consumer goods shortages influenced Soviet savings. Examples of earlier studies (Pickersgill, 1976 and Ofer and Pickersgill, 1980) conclude that Soviet household saving functions were rather similar to those of Western households largely discounting the forced savings notion. Pickersgill relied on data reconstructed by Western economists from a variety of Soviet sources while Ofer and Pickersgill used data from a cross-section of Soviet emigrant families. (2) However more recent evidence by Kim (1997 and 1999) indicates that Soviet savings typically have been underestimated. Kim also provides evidence that shortages did play a significant role in determining Soviet household savings - especially from the mid-1980s on. Additionally Smith (2003) using World Values Survey data presents evidence indicating a weak link between household income and subjective welfare in the SU relative to market economies. …