The role of net liquid wealth as household coping strategy

See table 3.42 to 3.53 in the appendix 4 for references to this section.

In this section we will discuss changes in net liquid wealth among households in the sample. Reduction in net liquid wealth whether through use of savings, or through taking up debt or credits allows households to break the immediate link between household income and consumption expenditures. Drawing on net liquid wealth may thus be yet another adaptation strategy vis-à-vis the drop in income from formal employment after the border closure.

Even during economic crises households must uphold a certain minimum level of consumption expenditures. Use of savings, or taking up debt or credits, may provide a household with some leeway before adapting compensatory measures on the income side of the household economy. That households may choose to reduce their net liquid wealth rather than compell their members to engage in any kind of income-generating activity, could explain what seems to be the low downward shift in worker reservation wages.

As already mentioned, reduction of net liquid household wealth can only be a short-term strategy. In the longer term, households without public social security must either reduce their consumption expenditures, or implement all possible compensatory measure on the income side to meet their minimum consumption requirements.

Drawing on net liquid wealth as a household coping strategy is consequently closely linked to expectations about future income possibilities. The more optimistic the expectations about future developments, the more will utilization of net liquid wealth appear as an attractive temporary solution, compared to a more painful reduction in household consumption expenditures.

Reducing net liquid wealth is, however, not a strategy available to all households. Some households possess no savings, and have restricted access to loans and credits. Households that use their savings may thus be less deprived than households which have nothing to sell.

The previous section found no reason to reject the "family employment network" hypothesis, according to which individuals facing employment problems rely primarily on the labour activity of other household members for economic support. Another possible coping strategy within the household support system may be labelled the "family capital network" hypothesis, whereby individuals facing employment problems also rely on reduction in net liquid household wealth for survival.

Before looking into this hypothesis, we need to present the indicators for net liquid wealth to be used. Second, we will discuss their distribution across socio-economic groups, and third, consider how they should be interpreted.

Indicators for net liquid household wealth

In addition to the index for household possession of consumer durables presented in the previous section, the survey has used four indicators to measure the level of net liquid household wealth, and any changes in it.

The two first indicators are possession and sale of gold (jewellery) and use of other "savings". Gold and "savings" are used as labels for real or finance capital of high liquidity, i.e assets which can be quickly transformed into legal tender without losing substantial value. Most real capital assets included in the index for household possession of consumer durable described above have low liquidity, and are consequently not considered as "savings".

Many Palestinian households, in particular those who became refugees, lost all or most of their gold and other such savings in the 1948-49 war. Because savings are frequently obtained through inheritance, we would expect the number of households with savings to be generally low, since there are many refugee households in our sample.

Gold has been singled out as a separate asset, for two main reasons. First, as we shall see, possession of gold is quite widespread.

Second, the patriarchal tradition in Palestinian households implies that final decision-making authority in economic affairs usually rests with the (male) head of household. Gold is, however, most often the personal property of women, obtained as dowry at marriage, or upon the birth of a child. This practice is supported by Shari'a law in which a woman's dowry is specified as her sole property.

Historically, dowry in the form of jewellery has been the main mechanism to ensure women some form of independent economic resources. The type of jewellery sold in the Occupied Territories and the fact that it is sold by weight, attest to its recognized significance as liquid capital comparable to other types of savings.

The third and fourth indicators which we used for measuring net liquid household wealth are use of credits for daily consumption and taking up loans for various purposes. Through the use of credits or borrowed money, even households with no gold or other savings can break the immediate link between household income and consumption expenditures.

The need to break this link is not necessarily rooted in a permanent decline in household income. Some households for example those living from agriculture have unstable income, and thus take up loans or use credits to keep consumption expenditures stable in the face of large fluctuations.

The practice of taking up debt differs in several ways from using credits. While credits are taken up primarily for daily consumption purposes, debt is commonly taken up for other reasons, such as for investments in housing, sales or production.

The sources of loans are far more diverse as well. While credits are provided primarily by local grocery stores, loans can be obtained from family, relatives, friends or various institutions. Those providing loans may be classified as personal or non-personal; among personal providers, whether they represent kinship relations or not.

Indicators for net liquid household wealth by socio-economic group

In general we found only small regional variations in the possession of gold and other savings. As shown by figure 3.31, about two in ten households report having no gold, while as many as two out of three households report that they have no savings.

The proportion of households reporting no savings may be exaggerated because fear of taxation by the Israeli Civil Administration often leads to under-reporting and concealment of assets. Among the households which reported selling gold and using of other savings, roughly half had done so to obtain money for consumption purposes, and one third for investments.

Within Gaza we found little variation in the possession and selling of gold and use of other savings, with regard to geography and refugee status. Households in the Northern West Bank refugee camps reported more savings and less gold than in the Central/ Southern camps.

Also for indicators for debt and credits regional variations are relatively small. Two out of five households in Gaza have loans, compared to three out of five in the West Bank refugee camps; loans for housing and consumption purposes are typical of West Bank refugee camps.

Among the households in both regions who have taken up loans, roughly 75% report increased debt since the border closure. About the same proportion say their loans are so large that they cannot easily repay them.

About half of the households in both main geographical areas buy their daily consumption on credit. The most important reasons cited are "No regular salary" in Gaza and "Cannot pay" in the West Bank refugee camps.

As for gold and other savings, we hardly found any variation in the indicators for loans and credits within Gaza, neither for geography nor for refugee status. In the West Bank refugee camps, the Northern camps have more debt, in particular for consumption purposes. More households in the Northern camps report increased debt since the border closure and that their loans cannot be easily repaid.

The single most prevalent source of capital in both areas is friends. In general, access to capital seems to be more dependent on kinship structures (family and relatives) in Gaza than in the West Bank refugee camps. The proportion of non-personal capital providers ("other than above") on the contrary, is highest in the West Bank refugee camps, possibly because of the lack of such institutions in Gaza.

Variations in sources of capital according to purpose for taking up loans are generally small. Money for house building comes from a mixture of sources, to a larger extent than other types of debt, probably because of the relatively large amounts involved.

The sources of debt among the group of households with increased debt since the border closure do not differ much from other households, and variations in capital sources according to changes in debt are generally smaller than between the two main geographical areas. The same goes for the group of households with payment problems.

Interpreting indicators for net liquid household wealth

How should we interpret these indicators for net liquid wealth? Are for example households that sell their gold and using savings, or take up loans and credits, particularly deprived? To answer these and other similar questions, we have correlated the indicators for net liquid wealth with the index for household possession of consumer durables.

Because of its relative stability, the index for household possession of consumer durables may serve as an indicator for household economic resources before the border closure. In table 3.3, this index has been correlated with the proportion of households possessing gold and other savings, and the proportion of households which have sold these assets for consumption purposes.

Table 3.3 Net liquid households wealth, by index for household possession of consumer durables. Percentage of all households in respective groups

	Gaza			West Bank camps
	Household consumer durables by thirds
	Lower	Middle	Upper		Lower	Middle	Upper
Sold savings for daily consumption	12	16	18		8	13	9
No savings	81	66	49		71	65	64
Sold gold for daily consumption	22	23	15		15	13	18
No gold	15	9	7		29	23	11
Have debt for:
Any purpose	41	44	42		57	58	61
Consumption	21	18	10		34	27	21
Debt change since border closure
Greater	29	32	24		45	40	49
Same	6	7	8		10	11	6
Smaller	2	1	7		1	3	6
Not applicable	4	4	3		1	3	1
No loans	59	56	58		43	42	39
Can loans not be repaid
Yes	31	33	25		45	46	44
No	10	11	17		11	12	17
No loans	59	56	58		43	42	39
Reason for credits
Cannot pay	31	14	10		42	28	16
Long-time practice	5	6	8		7	8	5
No regular salary	19	27	24		14	11	12
Other	1	5	10		1	3	3
No credits	44	48	48		36	50	63
n	365	323	267		231	168	98

The proportion of households possessing gold and other savings naturally increases with the score on the index for household possession of consumer durables. However, we find no systematic variation concerning the households selling gold and using other savings for consumption purposes. Such sales are thus possible but not indisputable indicators for particular economic deprivation. The poorest households seem to be characterized by having neither gold nor savings, rather than by selling gold and using savings for consumption purposes.

As shown by table 3.3, taking up debt is in itself not necessarily a sign of particularly serious economic deprivation. Taking up debt for consumption purposes, however, seem to be a coping strategy used especially by the poorest households.

Table 3.3 also shows that the vast majority of households with loans have increased their debt after the border closure, regardless of their score on the index for household possession of consumer durables. There is also little correlation between having repayment problems, source of loans, and score on index.

That also a high proportion of households in the upper wealth group reports repayment problems may be because the index for household possession of consumer durables reflects both former and present income levels. It may also indicate that the economic crisis has hit all types of households, but until now has not compelled those households which are relatively best off to sell their consumer durables.

Finally, does taking up credits for daily consumption indicate particular economic deprivation? Table 3.3 shows that in Gaza there is little variation in the prevalence of households using credits, in terms of the index for household possession of consumer durables. In the West Bank refugee camps, however, the proportion of households using credits decreases rather sharply with the index.

The proportion of households taking up credits because they "cannot pay" decrease with increasing household wealth in both main geographical areas. That also some households in the upper wealth group report taking up credits for this reason is most probably because the index for household possession of consumer durables reflects both former and current income levels.

Neither in Gaza nor in the West Bank refugee camps does taking up credits because of irregular salary seem particularly associated with low wealth. The same goes for households taking up credits as a long-time practice or for other reasons. In contrast to households taking up credits because they "cannot pay", taking up credits as such is thus not necessarily a sign of particular economic deprivation.

Investigating the typical time-sequence involved in selling gold and using other savings or taking up debt and credits is an alternative way of finding out which measures indicate particular deprivation. Figure 3.31 presents two examples of typical time-sequences for sale of gold, use of other savings, taking up loans for consumption purposes and using credits for consumption purposes.

Figure 3.31 Time sequence for reduction of net liquid wealth

The underlying assumption is that all households may take up debt and credits for consumption purposes, but that many households do not possess gold or other savings.

The typical time-sequence in reducing net liquid wealth among households which do possess gold or other savings is to start using savings, then to take up credits for consumption purposes, third to sell gold, and finally to take up debt for consumption purposes.

Among all households, taking up debt for consumption purposes is still the last measure to be implemented. Because many households do not possess gold or other savings, taking up credits for consumption purposes comes first.

The finding that taking up debt for consumption purposes is the last measure to be implemented both among households with gold or other savings, and among all households is in line with our earlier finding that the proportions of households using this measure increases with decreasing score on the index for household possession of consumer durables. ⁴

Net liquid household wealth and employment problems among household members

Let us now return to the "family capital network" hypothesis which, as mentioned, concerns the relationship between changes in net liquid household wealth and employment problems among household members.

Do individuals facing employment problems also rely on a reduction in net liquid household wealth for survival? May this adaptation strategy further help to explain the seemingly low downward shift in worker reservation wages?

We have compared the indicators for net liquid household wealth between households with at least one "discouraged" or unemployed worker, and other households.

Table 3.4 shows that households with "discouraged workers" have more debt, in particular for consumption purposes, than other households. It can further be seen that as many as 80% of these households have increased their debt since the border closure, an even higher figure than for other households. Finally, table 3.4 shows that more households with "discouraged workers" use credit for consumption purposes, and that these households more often cite "cannot pay" as the primary reason for taking up credits.

Table 3.4 Net liquid households wealth, by main geographical area and discouraged worker in household. Percentage of all households in respective groups

	Gaza		West Bank Camps
	Discouraged worker in household?
	No	Yes	No	Yes
Have debt for:
Any purpose	41	47	53	69
Consumption	15	22	26	35
Debt change since border closure
Greater	25	37	39	56
Same	7	7	10	9
Smaller	4	1	3	2
Not applicable	5	1	1	2
No loans	59	53	47	31
Reason for credits
Cannot pay	15	29	30	37
Long-time practice	6	6	6	10
No regular salary	22	26	12	14
Other	6	3	2	3
No credits	50	36	50	37
n	681	268	337	157

For possession of gold and other savings, and sale of these assets for consumption purposes, households with "discouraged workers" have the same scores as the overall average for the sample. The (much smaller group of) households with unemployed workers show roughly the same distribution with regard to indicators for net liquid household wealth as do households with "discouraged workers".

These results give no reason to reject the "family capital network" hypothesis. Many households in the sample seem to use reduction of net liquid wealth as a strategy for adapting to the effects of the border closure. Households with "discouraged" and unemployed workers tend to reduce their net liquid wealth even more than other households.

Individuals facing employment problems thus also seem to rely on reduction in net liquid household wealth for survival. This may help explain why there has been so little of evidence a downward shift in the reservation wages of "discouraged" and unemployed workers.

Reducing net liquid wealth as coping strategy: Household prototypes

Most households with "discouraged" or unemployed workers may be assumed to be more adversely affected by the border closure than other households. Below we will use these and other groups of households as prototypes in discussing the role of net liquid wealth in household adaptation strategies.

The various prototypes will be grouped rather crudely according to assumptions about their economic situation prior to the border closure, and how much they are assumed to be affected by the closure. Figure 3.32 gives an overview of theoretical prototypes, and the groups of households which will be used as empirical indicators.

Figure 3.32 Reduction of net wealth as coping strategy, household prototypes

As noted before, the labour force classification of household members refers to the week immediately prior to the survey, but we assume that both many of the households without labour-force members, and many of those with at least one full-time worker, have been in this situation for some time.

In the section about household income types, we found that female headed households tended to rely more on non-labour income from public sources than other households. This type of income has been relatively little affected by the border closure. Households with female heads have thus been classified together with households without labour-force members and households with at least one full-time worker, into a group of households where the affects of the border closure are assumed to be less than average.

On the other hand we have the three partially overlapping groups of large households, households with "discouraged" or unemployed workers, and households with members who lost employment in Israel from 1992 to 1993. These are assumed to have been more adversely affected than the average by the border closure. ⁵

Additionally, the various household groups have been classified according to assumptions about their level of economic resources prior to closure. The index for household possession of consumer durables has been the main tool utilized here.

Large households and households with at least one full-time worker both have above average scores on the index for household possession of consumer durables. Households with "discouraged" or unemployed workers score close to average, while households without labour-force members, or with female head of household, have below average scores on the index.

These two dimensions - pre-closure economic level and degree of adverse influence by the border closure - together form a matrix of four theoretical prototypes of households. We have, however, no empirical indicator for the prototype of households with a below-average pre-closure economic level and which are more adversely affected by the closure than the average ones.

It should further be noted that these groups of households are heterogenous, and that they thus only partially satisfy empirical indicators for the theoretical prototypes of households outlined in our classification table. (Some households headed by women, or households without labour-force members, must for example be assumed to belong to the now empty group noted above.

Given these initial reservations, we now turn to the role of net liquid household wealth as coping strategy among households in each of the three remaining theoretical prototypes.

The first prototype, characterized by above-average pre-closure economic level and by being less adversely affected by the closure than average, is represented by households in which there is at least one full-time worker.

These households more frequently possess gold and other savings than do other households. The proportion that has taken up loans is about the same as for other households, but relatively more of these loans has been obtained for housing purposes, and less for consumption purposes. Finally, these households do not use credits to a smaller degree for daily consumption purposes than others do, and they do not cite "cannot pay" less often as the primary reason for taking up credits.

The second prototype consists of households with above-average pre-closure economic level and which are more adversely affected by the closure than average. Here we find large households, households with members who lost employment in Israel from 1992 to 1993, and households with one or more "discouraged or unemployed workers. As can be seen from table 3.5, the distribution of indicators for net liquid household wealth among large households resembles the distribution among households with "discouraged" or unemployed workers.

Table 3.5 Net liquid households wealth, by main geographical area and no. of persons in household. Percentage of all households in respective groups

	Gaza				West Bank camps
	Total number of persons in household?
	1 - 5	6 - 10	11 or more	1 - 5		6 - 10	11 or more
Debt change since border closure
Greater	21	30	36	38		45	59
Same	5	7	9	8		10	12
Smaller	2	3	5	4		2	4
Not applicable	6	3	2	2		2
No loans	66	57	48	48		42	25
Difficulty repaying loans
Yes	26	30	36	38		46	63
No	8	13	17	14		12	12
No loans	66	57	48	48		42	25
Reason for credits
Cannot pay	16	20	22	27		34	40
Long-time practice	7	6	6	5		8	6
No regular salary	17	25	28	11		14	13
Other	3	4	10	1		1	8
No credits	58	44	34	55		43	33
n	297	462	195	186		248	62

Relative to small households, more large households have debt for consumption purposes, and a higher proportion have debt which they now find difficult to repay. Further, these households tend to use credits for daily consumption purposes, and more often cite "cannot pay" as the primary reason for taking up credits.

In Gaza, "large" households also have more gold and savings than small households. In the West Bank refugee camps, there is little variation in possession of gold and savings in terms of household size, perhaps because the most "wealthy" households have moved out. The profile of net liquid wealth indicators among households with members who lost employment in Israel resembles that of large households, but there seem to be even greater adverse changes in net liquid household wealth. This group has the largest proportion of households possessing gold and other savings, reflecting the relatively high remuneration of employment in Israel.

The third and final prototype is constituted by households with pre-closure economic level below average, assumed to be less than average adversely affected by the Closure. It is here we find the households without labour-force members and households headed by women.

Relative to other households, a lower proportion in these two groups of households possess gold and other savings. Further, these households have less debt, in particular for consumption purposes; they less often use credits for daily consumption purposes, and less often cite "cannot pay" as the primary reason for taking up credits than other households do. Finally, fewer households without labour-force members, or with female heads, have greater debt now than before the border closure, or loans which are difficult to repay.

A possible explanation for the samll use of debt and credits among households with female heads may be found on the supply side of the capital market. Many households which take up credits as a long-standing practice, or because they have irregular salary incomes, have close family or social connections with shop owners. Many female-headed households have less comprehensive family connections, and their access to credits in shops may be more restricted.

Table 3.6 shows the net liquid wealth indicator profile of the most "extreme" of the two groups of households of the third theoretical prototype, households with female heads.

Table 3.6 Net liquid households wealth, by main geographical area and head of households gender. Percentage of all households in respective groups

	Gaza		West Bank camps
	Male	Female	Male	Female
No savings	66	84	66	86
No gold	9	29	20	51
Have debt for:
Any purpose	44	26	59	47
Consumption	18	7	30	24
Debt change since border closure
Greater	30	16	47	24
Same	7	6	9	16
Smaller	3	1	2	6
Not applicable	4	4	1	2
No loans	56	74	41	53
Reason for credits
Cannot pay	19	22	32	39
Long-time practice	7	3	8
No regular salary	25	10	13	8
Other	6	1	2
No credits	44	65	45	53
n	848	97	444	48

Let us now sum up the role played by net liquid household wealth in coping strategies in each of the three theoretical prototypes.

Among the first prototype, empirically represented by households with at least one full-time worker, relatively stable labour income reduces the need to draw on net liquid household wealth. These households are relatively well off, and their best "adaptation strategy" is to uphold the income flow from labour activity.

Households of the third prototype, empirically represented by those without labour-force members or households headed by females, may in general be assumed already to have adapted to a minimum level of consumption expenditures. Relatively few of these households possess gold or other savings. Their use of (and possibly access to) loans and credits is further constrained because of their more limited access to capital, compared to households from larger family structures. Thus, the situation of these households illustrates that reducing net liquid household wealth may be used as a short-term coping strategy only.

The second prototype, empirically represented by large households, those with "discouraged" or unemployed workers, and those with members who lost employment in Israel from 1992 to 1993, would seem to rely most heavily on reducing net liquid wealth as a household coping strategy. These households do not yet seem to have adjusted consumption expenditures down to the lower level found among households in the third prototype. For large households, such reductions may also be extremely difficult, because they have a higher minimum level of consumption expenditures.

Reducing net liquid wealth represents, as stated above, only a short-term household coping strategy. Households of this prototype are thus crucially dependent on improved income opportunities in the near future. If such an improvement fails to materialize, their drift towards the situation characterizing households headed by females, can hardly be stopped.

al@mashriq                       961216