The Mental Cost of Pension Loss: The Experience of Russia's Pensioners during Transition

Abstract

In this article we investigate the impact of the 1996 pension crisis in Russia on several measures of subjective well-being (SWB). Using a difference-in-difference strategy and an individual fixed-effects model, we find that an exogenous shock to the redistribution system has a significant negative effect on the SWB of pensioners who fail to receive their pensions. The effect differs across aspects of life evaluation; the shock has a significant negative effect on current life satisfaction (LS), whereas it has no effect on self-assessed health. The effect of the shock extends to non-pensioners who live with pensioners in arrears: they experience an equally strong and significant decline in LS even after accounting for personal income. In addition, we find that the pension crisis leads pensioner households to neither receive more nor send less money to extended family, thus leaving these households to bear alone the entire monetary cost. Lastly, we find suggestive evidence that the crisis, despite being a purely monetary shock, affects well-being in ways that go beyond the monetary size of pension loss. Policies aimed to fully compensate for such disruptions in the redistribution system would need to take these externalities into account.

Citation

Kovacheva, P. and Niu, X. (2012), "The Mental Cost of Pension Loss: The Experience of Russia's Pensioners during Transition", Polachek, S.W. and Tatsiramos, K. (Ed.) Research in Labor Economics (Research in Labor Economics, Vol. 36), Emerald Group Publishing Limited, Leeds, pp. 191-240. https://doi.org/10.1108/S0147-9121(2012)0000036010