1. Buying Less, but Shopping More: The Use of Non- Market Labor During a Crisis David McKenzie, World Bank Ernesto Schargrodsky, Di Tella

2. “Women, the poor, children, the unemployed, etc. would be more willing to spend their time in a queue or otherwise ferreting out rationed goods than would high-earning males” (Becker 1965, A Theory of the Allocation of Time).

3. Adjustment to Aggregate Shocks Reduced set of risk-coping mechanisms  Formal and informal credit dries up  Rising inflation erodes value of savings  Price of assets fall.  group-based informal insurance can’t protect against common shocks  Unemployment limits use of labor market => Total expenditure falls by as much as income

4. Alternative Coping Strategies Reallocate expenditure, spending more on basic foods Take actions to change how much food a given amount of expenditure can buy  Spend more time searching  Shop at a wider variety of stores  Buy lower quality products

5. Non-Market Use of Labor When income falls, consumers can substitute goods for time in the production of consumption by increasing the time devoted to shopping and other home production activities. It has proven difficult, however, to test this implication. Standard expenditure surveys generally provide little information on shopping consumer behavior. When expenditure surveys including detailed shopping data exist, they usually have a cross- sectional structure with no exogenous source of income variation.

6. We use high-frequency (10-day) expenditure data from LatinPanel, a market research firm, to analyze shopping behavior during the 2002 Argentine crisis. The crisis provides a large exogenous shocks to households’ income which allows to identify the causal effect of income on shopping activity. Non-Market Use of Labor

7. Preview of results Consumers are found to shop more days a week at a wider variety of channels during the crisis. The fall in income explains much of the increase in shopping frequency. Increased shopping frequency results in lower prices and more priced goods, mitigating up to 40% of the fall in expenditure.

8. Outline Macroeconomic Overview Data Basic Facts – changes in expenditure, shopping frequency, stores visited and quality Explaining the increase in shopping frequency Prevalence as a mitigation mechanism Conclusions

9. The Macro Context Recession 1998(2)-2001 December 3, 2001: corralito – partial freeze on deposits January 6, 2002: govt. votes to end 11 years of convertibility and float the peso Real GDP fell 10.9% in 2002, private real consumption 14.4% Unemployment increases to 21.5% Poverty increases to 37.7%

10. Exchange Rate

12. Measure of Liquidity Effect of Corralito Discount rate offered by exchange houses for exchanging money inside the corralito for cash

13. Price Dispersion Average of coefficients of variation for individual products weighted by 2000 expenditure shares

14. LatinPanel Data Market research firm rotating panel of 3000 households nationwide for 2000-02 Purchase diaries kept of expenditure on food, cleaning and beauty products Record day of purchase, amount, units, quality, channel for each 10-day period Two main quality levels for each product: premium and priced goods

15. Products Food, cleaning and beauty products with brands Fresh fruit, bread, fresh meat, and meals out not included Mean expenditure shares: Food 76%, cleaning 13%, beauty 11% Calculate that LatinPanel food is about 50% of total food basket, total LP expenditure is around 15% of monthly income Mixture of necessity and luxury items

16. Ten Channels Hypermarkets Supermarkets Discounts Wholesalers Drugstores Kioscos (candy store) Almacenes (small grocery store) Autoservicios (self- service) Trueque (Barter Clubs) Other channels (Ferias etc)

17. Pseudo-panel structure For confidentiality restrictions LP does not provide data at the individual level, but instead aggregated into pseudo-households Pseudos contain all households with the same demographic and socioeconomic characteristics: Region *Socioeconomic Class * household size * housewife’s age * youngest child age In practice just over 400 pseudos Can also use this structure to match with labor force survey

18. Income Labor-force survey (EPH) provides income for matched pseudo-households: available for months of April and September each year only Monthly average wage from Social Security system to extrapolate change in average income between EPH months.

19. Buying Less Real LatinPanel total expenditure fell  10.6% between 2001 and 2002 (after 2.5% fall between 2000 and 2001) Quantity falls for all food (apart from yerba mate and pasta) and for all cleaning and beauty products Expenditure on premium products fell 17.6% Expenditure on priced goods rose 2%

20. Shopping more days

21. Shopping in more places

22. Measuring shopping frequency Channel-days: sum of the number of days spent shopping at each of the ten channels in the 10-day period Average pseudo-household spent 6.28 channel-days per 10-day period in 2001 and 6.71 in 2002 (7% increase)

24. Empirical Questions 1. Do people shop more as a response to falling incomes? 2. Or is shopping more just another cost of the crisis, reflecting increases in liquidity constraints, inflation, or price dispersion? 3. If this is a mitigation mechanism, how important is it?

25. The Income Effect (Cross-section) On the one hand, falling income lowers the opportunity cost of time, increasing shopping. On the other hand, falling income reduces consumption and the gains from shopping. Cross-sectional analysis: look at relationship between income and shopping frequency in 2001, prior to the crisis.  Non-parametrics: Freq = f(Labor Income)  Semi-parametrics: control also for quantities

28. The Income Effect Over Time Look at changes in income and shopping frequency for pseudos over time Control for pseudo-household fixed effects to capture time-invariant determinants of shopping frequency

30. Other crisis effects Corralito: restricts cash on hand, reducing liquidity  Expect this to cause people to shop more frequently buying fewer items each time Inflation erodes nominal balances, causing consumers to lower their reservation prices and increase shopping. Inflation generally accompanied by Price Dispersion  Consumers will want to hold a lower stock of knowledge about prices  May need to increase or decrease search to hold this smaller stock of information

31. Aggregate time trends Add time effects Allow effect of inflation, price dispersion, and corralito to differ by household  Construct pseudo-household CPI and price dispersion  Interact Corralito with credit card ownership

33. How prevalent is this for crisis mitigation? One of the most prevalent mechanisms  66% households use it.  60%-80% of households use different consumption strategies.  Instead, 13% use labor market, and between 2 and 11% use formal or informal credit, although adjustments in the labor and credit market have received much more attention in the literature.

35. Why shop more? To search out lower prices for the same products Instrument channel-days with EPH income

36. Results Shopping one more channel-day results in a 18% fall in the price of same product, along with 2% saving from switching to cheaper brands Crisis is estimated to increase channel-days by 0.20, so estimated 4% saving in price Expenditure fell 10%, so shopping increase mitigates approximately 40% of fall in expenditure through cheaper prices.

37. Conclusions Argentine consumers increased their shopping frequency as means of coping with the crisis Showed a mitigation mechanism that standard income and expenditure surveys provide little information about Mechanism is used by many households and has significant effects In the presence of aggregate shocks which prevent households from taking their labor to the labor market, non-market uses of labor like searching for better prices provide an alternate way for households to smooth consumption.