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Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
Urban wages  food prices in ethiopia
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Urban wages food prices in ethiopia

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Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference Hall

Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference Hall

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  • Can’t promise I am going to rock your world, but I hope to promote some debate and some further research or feasibility analysis into whether these proposals are really viable.
  • First panel: Excludingzimbabwe, Ethiopia had the highest food inflation in the world in 2008. Second paenl – this is the change in food CPI/nonfood CPI.
  • Deaton and Dreze (2002) argue that for India and South Asia agricultural wages are also a good poverty indicator for the rural poor because in South Asia agricultural labor is the reservation occupation for the poor
  • Transcript

    • 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTEURBAN WAGE BEHAVIOR DURING FOOD PRICE HIKES: THE CASE OF ETHIOPIA Derek Headey, Fantu Bachewe, Ibrahim Worku, Mekdim Dereje & Alemayehu Seyoum Taffesse IFPRI ESSP II Ethiopian Economic Association Conference July 19-21, 2012 Addis Ababa 1
    • 2. Background• The global food crises of 2007-08 and 2010-11 sparked a number of efforts to understand the poverty impacts of higher real food prices• On the one hand World Bank simulation approaches suggested global poverty rose by 160 million people• However, subjective survey data from Gallup suggest substantial variation of impacts, and that strong economic growth in developing countries limited the impacts of higher prices (Headey 2011)• A third less common approach is to deflate wages by (food) prices as a proxy for disposable income
    • 3. Background• Some precedent on agricultural wages & food prices• Literature is almost solely confined to Bangladesh (Ravallion; Palmer-Jones; Rashid), and Philippines (Lasco et al.).• Bangladesh: limited short run impacts of prices on wages; Philippines: fairly large short run impacts• More recent study by Mason et al. (2010) looks at urban manufacturing wages in Zambia and Kenya. No econometrics, but “food-disposable” wages fell in 2008, but were still high by historical terms because of strong economic growth.
    • 4. BackgroundIn this paper we have two objectives:1. To track real wages in (as per Mason et al.)2. To formally test wage adjustment (as per Lasco et al., etc)Our context – Ethiopia - is a particularly interesting one:1. Very poor (60% of urban pop. with <$2/day; 20% uN rate)2. Very understudied in World Bank & Gallup studies3. Unusually, we have monthly panel data on informal or casual wages (much better than previous data)4. Arguably the most rapid food inflation in the world in 2008 and 2011
    • 5. Figure 1. Average monthly inflation in Ethiopia relative to other developing countries: 2004-2011 4.0 3.0 Food inflation (%) Relative food inflation (%) 2.0 3.0 1.0 2.0 0.0 1.0 -1.0 0.0 -2.0 2005 2004 2006 2007 2008 2009 2010 2011 2011 2004 2005 2006 2007 2008 2009 2010 -1.0 Other developing countries EthiopiaSource: ILO (2012).
    • 6. 2. Data and methods• CSA consumer price data from 115 “urban” markets around the country, from July 2001 to October 2011• In addition to prices on food & non-food items, CSA asks about daily laborer wages, maids wages, guards• But since maids and guards are partly paid with food- in-kind, we only focus on laborers (trends the same)• Prices and wages collected for 3 respondents (firms or households) in each market and then averaged• Enumerators try to measure the same respondents (kind of a panel?)
    • 7. 2. Data and methods• To create a better wage welfare proxy, we create food and non-food price indices specifically for the poor• We used the 2004/05 HICES expenditure data, and measure expenditure shares just for the bottom 40%• We do this for rural and urban areas of each region, then apply these weights to the CSA price data to derive a set of spatially disaggregated “poor person’s price indices” (PPPIs) for food, non-food and all items• We deflate laborer’s wages by both food prices and total prices for the poor.
    • 8. 2. Data and methods• In principle, deflating by total prices is most appropriate for welfare interpretation, but deflating food prices may be more relevant for ultra-poor who may spend almost all of their income on food• More generally, are daily laborer’s wages are a good welfare indicator for the poor?• For India, Deaton and Dreze argue that wage series for casual labor are a good poverty indicator, because they represent the reservation wage for the poor• For urban Ethiopia we make the same argument
    • 9. 2. Data and methods• Finally, we use panel regressors to see whether wages react to food prices in the short run• We use a panel vector error correction model (PVEC) & spatially disaggregate by town/city size & regions• PVEC effectively separates out a long run adjustment relationship (cointegrating relationships) and short run adjustments.• We are more interested in the short run adjustments as they are more welfare-relevant. “In the long run we are all dead”
    • 10. 3. Results Fig. 2. Price trends for the urban poor: 2001-2011 350Price and wage indices (Dec. 2006=100) 2 sharp food price spikes, but 300 Poor persons food CPI 2011 saw nonfood inflation too 250 Poor persons nonfood CPI 200 Nominal wage index 150 100 50 0 2001m7 2001m12 2002m5 2002m10 2003m3 2003m8 2004m1 2004m6 2004m11 2005m4 2005m9 2006m2 2006m7 2006m12 2007m5 2007m10 2008m3 2008m8 2009m1 2009m6 2009m11 2010m4 2010m9 2011m2
    • 11. Food CPI (Dec. 2006=100) 100 150 200 250 300 350 50 2001m72001m12 2002m52002m10 2003m3 2003m8 2004m1 2004m6 General food CPI2004m11 2005m4 Poor persons food CPI 2005m9 general population: 2001-2011 2006m2 2006m72006m12 2007m52007m10 2008m3 2008m8 2009m1 2009m62009m11 2010m4 Fig. 3. Comparing food price trends for the poor and 2010m9 2011m2
    • 12. Figure 3. Trends in real daily laborer wages deflated by the urban poor’s food and total prices indices 13 Wages deflated by poor persons food CPI 21% Real daily wage of laborers (Dec. 2006 birr) Wages deflated by poor persons total CPI fall 12 10% fall 11 10 9 26% fall 26% fall 8 7Source: Author’s calculations from CSA (2011b) data. See section 2 for methods used.
    • 13. Table 1. National and regional trends in daily laborers wage(2006 birr), deflated by the poor person’s food CPI: 2001-2011year National Oromia SNNP Amhara Addis Tigray Somali2001 11.7 11.8 9.2 10.0 10.6 14.5 14.22002 11.4 11.5 8.9 9.3 10.4 13.9 14.92003 10.5 10.4 8.5 8.7 9.4 12.4 14.22004 10.7 10.2 9.1 9.3 10.2 12.3 13.52005 10.8 10.0 8.9 9.7 11.1 12.7 12.32006 10.7 9.8 8.8 10.5 11.3 11.5 11.52007 10.9 9.9 8.7 9.6 11.6 12.3 14.22008 9.2 7.7 6.8 8.5 10.2 11.4 12.62009 10.0 8.5 7.4 9.7 10.8 11.4 14.42010 11.5 9.6 9.3 10.4 11.3 12.9 15.42011 9.7 8.2 7.6 8.7 9.3 13.0 12.2%D: 2007-08 -15.5% -22.4% -21.8% -11.5% -11.8% -6.8% -11.2%%D: : 2010-11 -15.8% -14.2% -17.4% -16.5% -17.4% 0.8% -20.7%
    • 14. Table 2. National and regional trends in daily laborers wage(2006 birr), deflated by the poor person’s total CPI: 2001-2011 year National Tigray Amhara Oromia Somali SNNP Addis 2001 9.5 12.1 8.6 9.7 12.9 7.6 9.0 2002 9.5 11.9 8.3 9.7 13.3 7.3 8.8 2003 9.3 11.0 8.1 9.5 13.3 7.4 8.6 2004 9.7 10.7 8.6 9.4 13.0 8.3 9.2 2005 9.9 11.5 9.1 9.4 12.0 8.5 10.3 2006 10.4 11.3 10.1 9.7 11.7 8.9 10.7 2007 11.3 13.5 10.0 10.5 15.3 9.2 12.3 2008 10.8 13.6 9.9 9.4 15.1 8.3 11.9 2009 11.2 13.4 10.8 9.8 16.0 8.6 12.1 2010 12.2 14.6 10.9 10.6 17.3 10.0 11.7 2011 10.9 14.7 9.5 9.9 15.9 9.1 10.0 %D: 2007-08 -4.9% 0.9% -1.5% -11.0% -1.4% -9.8% -3.4% %D: : 2010-11 -10.4% 0.3% -13.0% -7.3% -8.3% -8.5% -15.0%
    • 15. • The long run relationship shows substantial adjustment of wages to food prices (elasticity of greater than 1), but not to non-food prices:• Wages = -2.9 +1.2*Food CPI -0.1* Nonfood CPI -0.001* t However, it is obviously difficult to put a welfare interpretation on this equation• Especially since the short run results show scarcely any adjustment . . .
    • 16. Table 3. Short run adjustment coefficients of panel vectorerror correction (PVEC), July 2001-October 2011 Small Full “Cities” towns AddisVariable sample >20K <20K SNNP Ababa Amhara Oromia∆ FPIt-1 -0.039*** -0.038** -0.041*** 0.023 -0.057** -0.062** -0.038*∆ FPIt-2 -0.028** -0.012 -0.037** -0.032 -0.067** -0.045* -0.013∆ FPIt-3 0.014 0.019 0.01 0.055* -0.037 -0.001 0.035∆ NFPIt-1 -0.004 0.006 -0.013 -0.0130 0.011 -0.004 -0.003∆ NFPIt-2 0.007 0.002 0.011 0.009 0.029 -0.008 0.022∆ NFPIt-3 0.002 0 0.003 0.005 0.009 -0.003 -0.005Numberofobservations 13571 5343 8228 719 3,549 2,240 2,839
    • 17. 4. ConclusionsMain findings:• Casual workers in urban Ethiopia have been hit hard by rapid food inflation in 2008 & 2011, particularly ultra- poor:10-26% loss of disposable income year, region, indicator• 2011 crisis (ongoing) seems worse than 2008 crisis• Given that households could have many coping mechanisms (e.g. longer working hours), these may be upperbound estimates of welfare impacts
    • 18. 4. ConclusionsPolicy questions:• Govt. has focused on trying to directly curb food inflation through price controls & subsidization• Efforts to reduce domestic inflation are sensible, but the capacity to fully reduce inflation may be limited given higher international prices and ambitious domestic growth scenarios in the GTP• So does Ethiopia need an urban social safety net?• Many considerations here, but one option is to index cash transfers to our poor person’s price index
    • 19. 4. ConclusionsResearch implications• Further work could try to validate the wage series as a relevant and accurate welfare indicator for poor• CSA could consider asking about food-in-kind for maids salaries, guards salaries• Arguably the collection of wage series by statistical agencies elsewhere should be scaled up• They appear to be a cost-effective and very useful high frequency indicator of urban welfare, and in some contexts, agricultural welfare (e.g. South Asia)

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