Lukas Kleine-Rueschkamp, University of Oxford, “The Impact of Transition on Well-Being”

1. The Impact of Transition from Plan to Market on
Subjective and Objective Well-Being
Lukas Kleine-Rueschkamp1, Sergei Guriev2, Francesca Dalla Pozza2,
Alicia Adsera3, Elena Nikolova2
1Oxford U., 2EBRD
3Princeton
December 6, 2016
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 1 / 41

2. Introduction
Outline
1 Introduction
Motivation
2 Data and Empirical Strategy
3 Results
Impact of transition on height and life satisfaction - LITS
Placebos and Robustness Checks
Heterogeneous Effects
Evidence from Russia
4 Conclusion and Next steps
Conclusion
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 2 / 41

3. Introduction Motivation
Post-communist transition
Systemic transformation in 30 countries with population of 400 million
people
Huge socio-economic shock but the impact on well-being is not clear:
Markets were supposed to start functioning reasonably quickly, hence
improved access to consumer goods
While the GDP fall was substantial, consumption did not fall as much
and started to recover almost right away
Widespread perception of substantial deprivation in early years of transition
But was the pain perceived or real?
If there was an effect on well-being, was it transient or persistent?
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 3 / 41

4. Introduction Motivation
Why do we care about impact of transition?
Macroeconomic performance of transition has generally been
considered a success Performance
Except for war-affected countries
And especially in democratic countries (Democratization is of course
endogenous)
Are there long-term implications of the transformational
recession at the individual level?
Important beyond transition:
The impact of institutional reforms in transition countries helps
understand social cost of structural reforms in developed and
developing countries
Hence the resistance to reforms and reform reversals
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 4 / 41

5. Introduction Motivation
In this paper
We measure the impact of transition on objective and subjective well-being
and attitudes at the individual level
We trace the long-term impact of early transition (”fossil research”)
People facing hardship at the age 0-2 are likely to grow up shorter:
Check cohorts born around years of transition (age 0-2)
These cohorts have finally grown up!
People’s beliefs are shaped in their“formative years”(age 18-25)
Check cohorts facing transition at the age of 18-25
Dependent variables: Height, BMI, Life satisfaction, trust, attitudes to
redistribution, market and democracy
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 5 / 41

6. Introduction Motivation
Preview of the Results
Individuals born around transition are on average almost 1 cm shorter
However, they are 14 percentage points more likely to be satisfied
with life (and better educated)
Heterogeneity: effects are driven by less privileged households
lower maternal education
lower maternal labour force participation
geographically: EEC and Russia
confirmed with various alternative identification strategies
Attitudes: more supportive of market and democracy
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 6 / 41

7. Introduction Motivation
Preview of the Results
Individuals born around transition are on average almost 1 cm shorter
However, they are 14 percentage points more likely to be satisfied
with life (and better educated)
Heterogeneity: effects are driven by less privileged households
lower maternal education
lower maternal labour force participation
geographically: EEC and Russia
confirmed with various alternative identification strategies
Attitudes: more supportive of market and democracy
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 6 / 41

8. Introduction Motivation
Preview of the Results
Individuals born around transition are on average almost 1 cm shorter
However, they are 14 percentage points more likely to be satisfied
with life (and better educated)
Heterogeneity: effects are driven by less privileged households
lower maternal education
lower maternal labour force participation
geographically: EEC and Russia
confirmed with various alternative identification strategies
Attitudes: more supportive of market and democracy
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 6 / 41

9. Introduction Motivation
Preview of the Results
Individuals born around transition are on average almost 1 cm shorter
However, they are 14 percentage points more likely to be satisfied
with life (and better educated)
Heterogeneity: effects are driven by less privileged households
lower maternal education
lower maternal labour force participation
geographically: EEC and Russia
confirmed with various alternative identification strategies
Attitudes: more supportive of market and democracy
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 6 / 41

10. Introduction Motivation
Related Literature
1 Height
1 80% genetics, 20% environment (Steckel, 1995). Key period: age 0 to
2
2 adverse conditions may cause stunting (Li, Manor, and Power 2004;
Saenger et al. 2007), gains in height via early life conditions
improvements (Case 2001; Duflo 2003)
2 Height and adult outcomes
1 schooling attainment (Case et al., 2009), cognition (Case and Paxson,
2008), non-cognitive traits such as confidence (Persico et al., 2004)
2 taller workers earn more (Vogl 2014, Case and Paxson 2008 etc.)
3 screening device by employers (Sohn 2014)
3 Social capital and attitudes
1 Recession experience: stock market participation (Malmendier and
Nagel, 2011), preferences for redistribution (Giuliano and Spilimbergo,
2014), trust (Ananyev and Guriev, 2015, Algan et al. 2016)
2 Individual experience during transition: attitude towards privatization
(Frye et al., 2009, 2012)
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 7 / 41

11. Introduction Motivation
Related Literature
1 Height
1 80% genetics, 20% environment (Steckel, 1995). Key period: age 0 to
2
2 adverse conditions may cause stunting (Li, Manor, and Power 2004;
Saenger et al. 2007), gains in height via early life conditions
improvements (Case 2001; Duflo 2003)
2 Height and adult outcomes
1 schooling attainment (Case et al., 2009), cognition (Case and Paxson,
2008), non-cognitive traits such as confidence (Persico et al., 2004)
2 taller workers earn more (Vogl 2014, Case and Paxson 2008 etc.)
3 screening device by employers (Sohn 2014)
3 Social capital and attitudes
1 Recession experience: stock market participation (Malmendier and
Nagel, 2011), preferences for redistribution (Giuliano and Spilimbergo,
2014), trust (Ananyev and Guriev, 2015, Algan et al. 2016)
2 Individual experience during transition: attitude towards privatization
(Frye et al., 2009, 2012)
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 7 / 41

12. Introduction Motivation
Related Literature
1 Height
1 80% genetics, 20% environment (Steckel, 1995). Key period: age 0 to
2
2 adverse conditions may cause stunting (Li, Manor, and Power 2004;
Saenger et al. 2007), gains in height via early life conditions
improvements (Case 2001; Duflo 2003)
2 Height and adult outcomes
1 schooling attainment (Case et al., 2009), cognition (Case and Paxson,
2008), non-cognitive traits such as confidence (Persico et al., 2004)
2 taller workers earn more (Vogl 2014, Case and Paxson 2008 etc.)
3 screening device by employers (Sohn 2014)
3 Social capital and attitudes
1 Recession experience: stock market participation (Malmendier and
Nagel, 2011), preferences for redistribution (Giuliano and Spilimbergo,
2014), trust (Ananyev and Guriev, 2015, Algan et al. 2016)
2 Individual experience during transition: attitude towards privatization
(Frye et al., 2009, 2012)
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 7 / 41

13. Data and Empirical Strategy
Outline
1 Introduction
Motivation
2 Data and Empirical Strategy
3 Results
Impact of transition on height and life satisfaction - LITS
Placebos and Robustness Checks
Heterogeneous Effects
Evidence from Russia
4 Conclusion and Next steps
Conclusion
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 8 / 41

14. Data and Empirical Strategy
Data
Life in Transition Survey:
Third round in 2015-16
First two rounds in 2006 and 2010
51,000 households in 34 countries
29 formerly socialist countries (excl. Turkmenistan)
Plus Cyprus, Germany, Greece, Italy, Turkey, use as comparator
countries
75 locations per country
Including 50 locations covered both in 2010 and 2016
extensive household survey
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 9 / 41

15. Data and Empirical Strategy
Additional dataset on Russia
Russian Longitudinal Monitoring Survey
Panel 1994-2014
Includes the whole family, both adults and children
Can control for parental height
Can run within-family comparisons for siblings
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 10 / 41

16. Data and Empirical Strategy
Identification strategy, LITS
Difference-in-differences
Transition started at different times in different countries
We use the year of price liberalization:
1990: 9 countries
1991: 3 countries
1992: 6 countries
1993: 6 countries
1994: 1 country
1995: 4 countries
Also use continuous measures of transition shock
Control for birth-year dummies (and country dummies) or for
country-specific linear trends, cluster at country level (or PSU level)
Placebos
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 11 / 41

17. Data and Empirical Strategy
Identification strategy, Russia
Same timing of transition
But respondents are interviewed in different years
Hence can also control for age
Families including both adults and children
Can control for parental height
Can compare siblings within family
Sufficient number of observations to address endogenous fertility via
matching
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 12 / 41

18. Data and Empirical Strategy
Empirical Strategy
Main specification for height:
Y icy = αc + β ∗ BornTransitioni + γ Xi + δ ∗ Yeari + θ ∗ Trendcy + εicy (1)
Specification for attitudes and life satisfaction:
Y icy = αc + β ∗ BornTransitioni + γ Xi + δy + εicy (2)
where:
Y icy - outcome of individual i in country c and with birth year y
BornTransitioni =1 if individual i was born during transition or shortly before
Xicy - Individual level characteristics
Yeari - birth year
αc - country fixed effects
δy - birth year fixed effects
Trendcy - country-specific linear trends
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 13 / 41

19. Results
Outline
1 Introduction
Motivation
2 Data and Empirical Strategy
3 Results
Impact of transition on height and life satisfaction - LITS
Placebos and Robustness Checks
Heterogeneous Effects
Evidence from Russia
4 Conclusion and Next steps
Conclusion
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 14 / 41

20. Results Impact of transition on height and life satisfaction - LITS
Impact of transition on height
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 15 / 41

21. Results Impact of transition on height and life satisfaction - LITS
Impact of transition on height
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 16 / 41

22. Results Impact of transition on height and life satisfaction - LITS
Impact of transition on height: Speed of Price
Liberalisation
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 17 / 41

23. Results Impact of transition on height and life satisfaction - LITS
Are those cohorts less satisfied with their lives? No
Form
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 18 / 41

24. Results Placebos and Robustness Checks
Placebos and robustness checks
Placebos
Cohorts born after transition are similar or taller AfterTransition AfterTransition2
No effects in non-transition countries
No effect of any specific year (e.g. Berlin Wall 1989 or collapse Soviet
Union 1991) PlaceboBerlin
Robustness checks
Robust to inclusion of year fixed effects and country-specific linear
time trend RobustFct
Migration? We can rule out internal migration
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 19 / 41

25. Results Placebos and Robustness Checks
Placebos and robustness checks
Placebos
Cohorts born after transition are similar or taller AfterTransition AfterTransition2
No effects in non-transition countries
No effect of any specific year (e.g. Berlin Wall 1989 or collapse Soviet
Union 1991) PlaceboBerlin
Robustness checks
Robust to inclusion of year fixed effects and country-specific linear
time trend RobustFct
Migration? We can rule out internal migration
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 19 / 41

26. Results Heterogeneous Effects
Heterogeneity
Urban: Availability of food?
Ethnic minorities: No impact for born in transition
Less support for markets and democracy as well as less trust for
formative years
Gender: Positive effect on life satisfaction is driven by women
Underprivileged households:
parental education Education
maternal labour force participation Workforce
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 20 / 41

27. Results Heterogeneous Effects
Heterogeneity: Maternal Education
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 21 / 41

28. Results Heterogeneous Effects
Heterogeneity: Maternal Education
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 22 / 41

29. Results Heterogeneous Effects
Heterogeneity: Maternal Labour Force Participation
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 23 / 41

30. Results Heterogeneous Effects
Which countries drive the results?
Primarily driven by Eastern Europe, the Caucasus and Russia
Once we exclude respondents from EEC & Russia, the effect disappears
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 24 / 41

31. Results Heterogeneous Effects
Potential sources of selection
Effects driven by EEC and Russia
Concerns about selection and endogeneity:
endogenous fertility choices?
do children born during transition come from different types of families?
⇒ closer look at Russia
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 25 / 41

32. Results Heterogeneous Effects
Potential sources of selection
Effects driven by EEC and Russia
Concerns about selection and endogeneity:
endogenous fertility choices?
do children born during transition come from different types of families?
⇒ closer look at Russia
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 25 / 41

33. Results Evidence from Russia
Robustness: Alternative Identification Strategies
Additionally, we can use data on Russia with even more information
data on entire families
parental height data
children included in the sample
⇓
Adult height
Children height-for-age z-scores
Within-Family regressions
Propensity score matching
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 26 / 41

34. Results Evidence from Russia
Evidence from Russia
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 27 / 41

35. Results Evidence from Russia
Matching
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 28 / 41

36. Results Evidence from Russia
Results Russia
Impact of transition on height in stronger in Russia
Especially within families
But are Russians born around transition less happy?
No significant difference
If anything, Russians born around transition are happier
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 29 / 41

37. Results Evidence from Russia
Selection into Fertility?
How do families differ?
Any significant differences between parents?
education
occupation
other demographics
⇒ No, only around 1 year younger
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 30 / 41

38. Conclusion and Next steps
Outline
1 Introduction
Motivation
2 Data and Empirical Strategy
3 Results
Impact of transition on height and life satisfaction - LITS
Placebos and Robustness Checks
Heterogeneous Effects
Evidence from Russia
4 Conclusion and Next steps
Conclusion
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 31 / 41

39. Conclusion and Next steps Conclusion
Summing up
Evidence that transition pain was real:
Huge impact of transition on height
Similar to the impact of a war; is partially but not fully explained by
GDP
Transition’s pain was much more than just a recession
Pain seems to have been“transitory”
no lasting effects on subjective life satisfaction
But: underprivileged individuals more adversely affected by
transition
Those facing transition in their formative years still support markets
and democracy
Reflects excitement and high expectations in early years of the reform
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 32 / 41

40. Conclusion and Next steps Conclusion
Implications for other reformers?
The pain of transition was very large but eventually temporary
Very long but transition was a much bigger transformation than a
labor market reform or a pension reform
Lessons for future reforms? need to make them less painful and
more inclusive
The potential losers of the reforms should be provided not just with
one-off compensation but with the relevant skills to assure their
employability in the future.
Yet, there is a risk of permanent effect through political economy
If adopt“short-term pain, long-term gain”approach, may end up with
populist politicians to take over
These may destroy democratic institutions and will not be removed
from office even if/when the initial pain of reform is overcome
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 33 / 41

41. Conclusion and Next steps Conclusion
Next steps and questions for the audience
Precise mechanisms: food provision?
Collapse of state institutions?
state pensions
public employment
Exploit regional variation for Russia
Kleine et al. (Oxford; EBRD; Princeton) Transition and Well-Being December 6, 2016 34 / 41

42. Placebo 1-3 after transition
Back

43. Placebo 3-5 after transition
Back

44. Placebo: Berlin Wall and Soviet Dissolution
Back

45. Robustness: functional form
Back

46. Formative years:
Back

47. Height Satiation
Back

48. Macroeconomic Performance by Region
Back