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Feeling Poor, Feeling Rich, or Feeling Middle-Class : An Empirical Investigation (English)

Based on their objective economic situation and comparing with their peers, individuals form perceptions of their economic position in a society. Data from the three waves of the Life in Transition surveys of European countries show that these perceptions systematically deviate from the rankings obtained using consumption levels. People position themselves in the middle ranks in larger numbers than those who are in the middle ranks according to their consumption levels. Correspondingly, many people who objectively are classified in the top, richest, or bottom, poorest, ranks subjectively feel that they are in the middle class. This puzzling "bunching in the middle" is the focus of this paper. Explanations are tested and discarded that consider subjective perceptions as misperceptions or the result of other mistakes due to data limitations (such as tail bias). The paper concludes that rather than reflecting a subjective assessment of the distribution of welfare, subjective rankings reveal subjective economic well-being. The paper show that monetary consumption is a strong predictor of subjective economic well-being, but that the latter is influenced by many other factors, including economic security, proxied by employment status or other measures of human capital, such as health and education. These findings have policy relevance, since redistribution measures aiming at simply protecting consumption levels may not be sufficient to restore the economic well-being provided by having full-time secure types of employment.

Details

  • Author

    Bussolo,Maurizio, Lebrand,Mathilde Sylvie Maria, Torre,Ivan

  • Document Date

    2020/10/27

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS9456

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2020/10/27

  • Disclosure Status

    Disclosed

  • Doc Name

    Feeling Poor, Feeling Rich, or Feeling Middle-Class : An Empirical Investigation

  • Keywords

    Life in Transition Survey; millennium development goal; consumption; current income; permanent income; consumption level; distribution of consumption; level of consumption; asset index; response rate; share of children; distribution of welfare; permanent income hypothesis; degree of concentration; Poverty & Inequality; principal component analysis; measure of inequality; subjective assessment; economic welfare; good health; relative income; health status; life satisfaction; consumption distribution; university degree; employment status; standard error; subjective perceptions; social progress; economic security; political connections; relative ranking; empirical investigation; subjective data; monetary income; welfare distribution; transitory income; positive relationship; university education; household composition; individual characteristic; development policy; data issue; household survey; job satisfaction; missing data; geographical location; social contract; education level; total sample; standard indicator; stochastic dominance; inclusive growth; welfare function; household consumption; measuring welfare; empirical literature; redistribution policy; human capital; durable good; uniform distribution; Durable goods; internet connection; aggregate index; respondents felt; survey data; panel data; welfare measurement; welfare indicator; washing machine; exogenous shock; natural experiment; consumption measure; asset consumption; equal share; independent variable; individual level; Research Support; aggregate response; upper right; open access; old person; market economy; explanatory power; intergenerational mobility; policy relevance; time t; social circumstances; household size; country ranking; free market; data limitation; full employment; absolute income; high probability; life index; administrative sources; asset information; average price; consumer product; expected value; measured consumption; empirical support; behavioral pattern; linear regression; subjective indicators; educational level

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Citation

Bussolo,Maurizio Lebrand,Mathilde Sylvie Maria Torre,Ivan

Feeling Poor, Feeling Rich, or Feeling Middle-Class : An Empirical Investigation (English). Policy Research working paper,no. WPS 9456 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/939251603805617928/Feeling-Poor-Feeling-Rich-or-Feeling-Middle-Class-An-Empirical-Investigation