Abstract
Existing evidence on whether relative status is an important determinant of well-being has two key features: it is mainly derived from high income countries, and it relies on relative deprivation measures constructed by the researchers, rather than being reported by the respondents. The need to construct relative deprivation measures imposes strong assumptions with respect to obvervability of relative deprivation. This paper adds evidence on the importance of social comparisons based on self-reported relative status assessments, which obviates the need to impose observability assumptions. The underlying survey data has the added benefit of coming from six transition economies at different levels of economic development, making it possible to explore the role of social comparisons at low income levels. Interviewer’s observations of the household’s relative deprivation are also employed to address the endogeneity concerns associated with using self-reported relative status measures. The results suggest that relative deprivation is indeed a welfare-relevant concern, even in the poorest countries in Eastern Europe. Among multiple reference groups available in the data, local social comparisons appear to be most salient.
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Notes
Note that unlike other studies, Senik (2004) finds reference group income to exert a positive effect on individual satisfaction, which the author interprets in the spirit of Hirschman’s “tunnel effect” (Hirschman and Rothschild 1973), i.e. the reference group income is treated more like an indication of their own future income, rather than of their inferior relative status.
For an overview of the history of the theory of social comparison, see Suls and Wheeler (2000).
In tables, the countries are labeled by their acronyms, respectively, MKD, KAZ, MLD, SRB, TAJ, and UKR.
In Serbia the sample size is 2,401 households, as data for the Roma booster were not part of the publicly available dataset.
The results in Sect. 5 are not affected if the asset index is replaced in regressions with the set of assets that are used in its construction by means of a set of dummy variables.
Note that because of the high share of respondents who were not able to rank their standard of living in comparison to that of their grandparents, the empirical analysis in Sect. 5 omits this comparison group.
One may worry that the interviewer’s assessment of the respondent’s relative deprivation may be influenced by the mood of the respondent. There are two factors mitigating this possibility. First, the interviewer is not asked to provide a direct assessment of relative deprivation, rather the assessment of the neighbourhood and the assessment of the property are provided separately, and these two questions are not consecutive. Secondly, in the questionnaire the respondent’s assessment of relative status is in the first half of the interview, whereas the respondent’s assessment is provided at the end of the interview, after attitudinal questions that do not probe the respondent’s welfare in either absolute or relative terms.
Ferrer-i-Carbonell and Frijters (2004) examine the more stringent assumption of cardinality, i.e. that the difference between responses 2 and 3 on the satisfaction scale is the same, for instance, as the difference between 6 and 7. Relying on data from the German Socio-Economic Panel (GSOEP) they look at differences between ordinal and cardinal models of life satisfaction using the 11-step response to the following question: “How happy are you at present with your life as a whole? Please answer by using the following scale in which 0 means totally unhappy, and 10 means totally happy.” They find that results are largely unaffected by the choice of cardinal vs. ordinal specification.
I am grateful to an anonymous referee for pointing this out.
I am grateful to Andrew Clark for pointing this out.
It should be noted that ’neighbours’ was not among the possible answers in the survey question ’Whose income would you be most likely to compare your own with?’ Certainly there can be considerable overlap between neighbours and friends/co-workers. Note also that Clark and Senik do not have data on the incomes or consumption levels of these reference groups, such that they are not able to directly test for the effect of the individual’s status relative to her reference group on her well-being.
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Acknowledgments
I would like to thank Andrew Clark, Bob Rijkers, Branko Milanovic, Carol Graham, Madiha Afzal, Michael Lokshin, Peter Murrell, as well as two anonymous referees for comments on an earlier version of this paper. All remaining errors are mine alone. The views expressed in this paper are those of the author and should not be attributed to the World Bank Group or any affiliated organization.
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Cojocaru, A. Does Relative Deprivation Matter in Developing Countries: Evidence from Six Transition Economies. Soc Indic Res 125, 735–756 (2016). https://doi.org/10.1007/s11205-015-0864-2
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DOI: https://doi.org/10.1007/s11205-015-0864-2