The Anatomy of Household Shocks in Latin America: Evidence from Panel Surveys

Households in developing economies face frequent and uninsured shocks that generate income volatility and persistent vulnerability. Using harmonized longitudinal data from household surveys in Colombia, El Salvador, Mexico, and Peru covering 20022023, this paper presents new evidence on the incidence and persistence of self-reported shocks related to weather, health, and employment, as well as on the welfare changes and coping strategies that follow. We document five main findings. First, exposure is widespread and persistent: roughly one in four households experiences at least one adverse event in a given year, with a shock in one period raising the probability of being hit again in the next by eleven to twenty-two percentage points depending on the type of shock. Second, incidence varies sharply across households. Rural and poorer families are more likely to experience weather and health shocks, while employment shocks are more common among urban, less deprived households. Third, changes in welfare differ markedly across shock types and time horizons. Employment shocks are followed by the steepest short-term declines in income and consumption, while weather shocks are associated with smaller but more persistent and compounding losses. Health shocks, in contrast, raise expenditures as households increase spending to cope with medical needs. Fourth, shocks trigger costly coping responses. Households rely on borrowing, public transfers, and labor reallocation to smooth losses, with the mix of strategies varying across shock types. Fifth, long-run recovery is markedly unequal: after an initial downturn, households with higher baseline consumption manage to largely recover from weather shocks, while poorer households do not. Households enrolled in government programs before shock occurrence experience substantially lower income losses from both weather and employment shocks, suggesting these programs act as insurance against a broad range of adverse events.