Tyranny of numbers

New survey data show precipitous drop in incomes

Posted in General, Macroeconomy by Djavad on September 29, 2009

For the last few days I have been staring with disbelief at the results of the most recent Household expenditures and Income Survey from the Statistical Center of Iran.  The drops in expenditures and incomes are much larger than I had expected.  Too bad that the release of the Central Bank national accounts data have been delayed.  They wold settle my questions about the recession last year because besides personal consumption, they would provide data on investment and public expenditures. 

Rural incomes and expenditures rose by 2.8% and 10%, and urban by 13% and 15%.  Taking into account an inflation rate of 25.4%, we aer talking about 20 and 10 declines in average incomes of rural and urban households, respectively.  This level of decline did not happen in the worst years of the war with Iraq. The government was not short of cash, so why such a large drop?

I will have to get back to staring at the numbers until someone enlightens me!

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  4. حسین عباسی said, on October 7, 2009 at 12:11 pm

    It is strange. One way to test the data is to take a look at different groups of expenses, food, clothing, investment, etc. This might clarify the issue a little bit. I recall that in Household and Budget Surveys of some years, the investment items were not mentioned. It might happen again.

    • dsalehi said, on October 12, 2009 at 5:47 am

      Strange it is, but I very much doubt it is caused by change in the method of calculation. They have a formula to calculate these things –for example, they do not include investment expenditures in calculating consumption–which they probably do not change. When they decide to give the data files, we can find out what has happened to the various components of expenditures and income.

      • حسین عباسی said, on October 19, 2009 at 9:36 pm

        You are right. The details seem consistent with the decline in real income. Expenditure on food increased more then non-food expenditures. The highest increase in expenditure occurred in necessary goods (bread and housing) and the lowest increases (or even decreases) belong to unnecessary goods such as furniture.

      • dsalehi said, on October 27, 2009 at 9:38 am

        Thanks for looking into this. I am hoping that we will have the micro data at some point to be able to dig deeper.

  5. Hojat said, on October 5, 2009 at 11:23 am

    Are you sure that there is absolutely no change in the method that they use to collect data? It is very difficult to say that the real GNP has decreased this much.

  6. کیوان said, on October 2, 2009 at 12:26 pm

    I agree with Mohammad – this will make more sense if we compare it to 1. Other countries drops in income over the last years given similar levels of GNI or GDP per capita and 2. to Iran’s own history of economic recessions. I assume you’re on it!

    Also, there may be a qualitative reason that “inflation, Iranian style” over the past 2-3 years results in this type of distortionary effect on prices v. consumption. I don’t have the answer but maybe the data on public expenditures will help.

  7. Mohammad said, on October 2, 2009 at 8:01 am

    This is rather shocking. Two questions which I would be grateful if you answer:
    1. Is this the first time an income drop has happened after the war with Iraq (i.e. in the last 20 years)?
    2. Is Iran the only significant developing economy (by ‘significant’ I mean with a high growth potential, say developing countries with more than 30m poplulation) which has suffered a drop in income last year? If not so, what percentage (roughly) of developing countries have had an income drop?

  8. sanaz said, on October 1, 2009 at 10:33 pm

    What about the distribution?

    • dsalehi said, on October 6, 2009 at 12:29 am

      Very good question. Before the election a study put out by SCI claimed that the distribution of income/expenditures had become more equal. Now we know why. In Iran equality improves during bad times! See the evidence in my paper in the Journal of Economic Inequality 2009.

  9. sanaz said, on October 1, 2009 at 8:25 am

    what about income/expenditure distribution? Does inequality increased?

  10. Ali Vosough Rad said, on September 30, 2009 at 11:45 pm

    The most important factor cuasing the precipitous to drop in incomes of ordinary people is lack of the healthy competition among the goods and service providers who are mostly run by business families!

    Why the competition is not healthy? I can’t answer that question but I know the solution!

    The solution is in using the technology for both rural and urban business environments to make it possible for small business to compete with medium, large companies and/or business families more effectively.

    I personally believe that in 21st centuary, any country with a not healthy business infrastructure like Iran, eventually will overcome this by using the technology to achieve connectivity, speed and intangible values for small business in the future.

    Small business is your world!

  11. hazhir said, on September 30, 2009 at 10:09 pm

    Very interesting. Could it be partly because the industrial production has slowed down much due to significant import levels and the pegged dollar price that has put internal producers in a very disadvantaged position?

    • dsalehi said, on October 6, 2009 at 12:25 am

      Both factors that you mention very likely contributed to the recession.

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