Household Budgets, Household Composition and the Crisis in Indonesia: Evidence from Longitudinal Household Survey Data

Using panel data from Indonesia, the impact of the financial crisis on the welfare of households is examined. Contrasting consumption of the same households in late 1997 and late 1998, mean per capita expenditure (PCE) has declined by around 25% while median PCE has remained constant. The crisis has had its biggest impact on households in the top and bottom quartiles of the PCE distribution. However, estimates of the magnitude of the crisis are very sensitive to assumptions about inflation. Moreover, for all households, there have been substantial increases in the share of the budget spent on food and, especially, staples suggesting a decline in welfare across the board. This reflects, in part, increases in the relative price of foods. To partially side-step the tricky issues revolving around the measurement of prices, we focus on comparisons across demographic sub-groups and examine changes in the "costs" of each group as implied by the weight they carry in the allocation of the household budget. Special attention is paid to investments in human capital of the next generation and, in particular, expenditures on education. Among poor households in urban areas, 15-19 year old males have been largely protected from the crisis at the expense of their younger brothers and sisters. In the rural sector, poor households have substantially cut back on education expenditures and the axe has fallen on 1519 year old males as well as 10-14 year old males and females. The results suggest that for these households the impact of the crisis is likely to be felt for many years to come.