metadata: authors: 0: author: Silber, Jacques
1: author: Verme,Paolo
count: Europe
docna: 0: docna: Relative deprivation, reference groups and
            the assessment of standard of living
docty: Policy Research Working Paper
subtopic: Labor Markets,Educational Sciences,Poverty Reduction Strategies,Gender and Development,Inequality,Rural Labor Markets
teratopic: Poverty Reduction,Social Protections and Labor,Macroeconomics and Economic Growth,Private Sector Development
abstracts: cdata!: This paper proposes two new indices of
            relative deprivation, derived from an extension of the
            concept of the generalized Gini for the measurement of
            distributional change. Population- and income-weighted
            relative deprivation indices are then defined and, using
            panel data from the Consortium of Household Panels for
            European Socio-Economic Research, this paper checks which of
            the various ways of defining individual deprivation best
            fits the answers given by individuals on the degree of their
            satisfaction with income. The analysis finds that the
            deprivation indices proposed are consistently and negatively
            correlated with income satisfaction as reported by
            respondents, that income weighted measures fit better than
            population weighted measures, and that this fit improves
            with countries that experienced deep institutional changes
            such as the transitional economies of Eastern Europe.
repnme: repnme: Relative deprivation, reference groups and
            the assessment of standard of living
display_title: Relative deprivation, reference
            groups and the assessment of standard of living
listing_relative_url: /research/2012/01/15593218/relative-deprivation-reference-groups-assessment-standard-living
topicv3: Labor Markets m1326488 855,Poverty m1326687 695,Education m1327048 470,Gender m1327621 615,Income Inequality m1503891 2668
publishtoextweb_dt: 2012-01-03T00:00:00Z
historic_topic: Poverty Reduction,Social Protections and Labor,Macroeconomics and Economic Growth,Private Sector Development
no_of_pages: 31
author_keys: 0: author_key: 439872
model_extractions: WPS5930 Policy Research Working Paper 5930 Relative Deprivation, Reference Groups and the Assessment of Standard of Living _Jacques Silber Paolo Verme_ The World Bank Middle East and North Africa Region Economic Policy, Poverty and Gender Unit January 2012
Policy Research Working Paper 5930

# **Abstract**

This paper proposes two new indices of relative deprivation, derived from an extension of the concept of the generalized Gini for the measurement of distributional change. Population- and income-weighted relative deprivation indices are then defined and, using panel data from the Consortium of Household Panels for European Socio-Economic Research, this paper checks which of the various ways of defining individual deprivation best fits the answers given by individuals on the degree of their satisfaction with income. The analysis finds that the deprivation indices proposed are consistently and negatively correlated with income satisfaction as reported by respondents, that income weighted measures fit better than population weighted measures, and that this fit improves with countries that experienced deep institutional changes such as the transitional economies of Eastern Europe.

This paper is a product of the Economic Policy, Poverty and Gender Unit, Middle East and North Africa Region. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at pverme@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Relative Deprivation, Reference Groups and the Assessment of**

# **Standard of Living**

_Jacques Silber_ Department of Economics, Bar-Ilan University, 52900 Ramat-Gan, Israel _Paolo Verme_ The World Bank and Department of Economics, "S. Cognetti de Martiis", University of Torino

**Abstract**

This paper proposes two new indices of relative deprivation, derived from an extension of the concept of generalized Gini to the measurement of distributional change.

Population- and income-weighted relative deprivation indices are then defined and, using panel data from the Consortium of Household Panels for European SocioEconomic Research (CHER), we check which of the various ways of defining individual deprivation best fits the answers given by individuals on the degree of their satisfaction with income. We find that the deprivation indices proposed are consistently and negatively correlated with income satisfaction as reported by respondents, that income weighted measures fit better than population weighted measures and that this fit improves with countries that experienced deep institutional changes such as the transitional economies of Eastern Europe.

**Key Words:** generalized Gini index, income satisfaction, relative deprivation

**J.E.L. Classification** : D31 – D63 – I32 – O15

Sector Board: Poverty (POV) <mark>1</mark>
# **I) Introduction**

Sociologists have for a long time made the assumption that individuals are concerned about their relative status. Such an emphasis may be found in the writings of Karl Marx who wrote that "our desires and pleasures spring from society, we measure them therefore by society and not by the objects which serve for their satisfaction. Because they are of a social nature they are of a relative nature"<sup>1</sup> . This idea of relative concern is also at the basis of the concept of relative deprivation which was introduced originally by Stouffer et al. (1949) and systematized by Runciman (1966) who also stressed the importance of reference groups. He argued that there does not seem to be a strong correlation between the level of "class-political discontent" and objective indicators of material deprivation so that this discontent is rather related to the gap which exists between one's economic and social conditions and the perceived conditions of some reference group.

Economists have also quite a long tradition of including relative income or status in models of utility maximization but for many years those taking such a point of view were the exception. Duesenberry (1949), for example, assumed that individuals have a desire for self-esteem and as a consequence they tend to imitate the consumption patterns of those who have a higher socioeconomic status. Similar ideas may be found in the works of Hirsch (1976) who coined the term "positional goods", Frank (1985) and in numerous papers analyzing in recent years the determinants of happiness (e.g., Blanchflower and Oswald, 2004, Clark, 2003, Ferrer-i-Carbonell, 2005). More recently Hopkins (2008) in a paper on happiness and relative concerns argued that there are at least three reasons why concern for relative position seems to be so deeply rooted in human behavior. His first explanation, which he calls the "rivalry story", stresses the fact that, in ancient times, men who were successful (e.g. in hunting) would use their

> 1 This citation is taken from Pedersen (2004) but Pedersen himself seems to have found it in Rainwater (1974).

2
prestige and assets to dominate their companions, in particular in having priority in access to women. The second explanation seems to have been suggested by Samuelson (2004) and Rayo and Becker (2007) and was called the "information story" by Hopkins. Here the idea is that the conduct of individuals who are successful will be imitated. In other words "evolutionary selection has given you concerns about others in order to give you an incentive to gather useful information about potentially profitable activities" (Hopkins, 2008). Finally a third explanation, labeled the "perception story" by Hopkins, stresses the fact that in the same way as our evaluation of the taste of a given orange depends on the overall distribution of the taste of oranges, our satisfaction with a specific income depends on the overall distribution of incomes.

The importance of relative income is also stressed in another field of the economic literature, that dealing with inequality and relative deprivation. Borrowing the basic ideas of Runciman, but assuming that the reference group is the group of richer individuals, Yitzhaki (1979) showed the link that exists between the concept of relative deprivation and the Gini index. Additional contributions stressing similar ideas may be found in Hey and Lambert (1980), Yitzhaki (1982), Kakwani (1984) and Berrebi and Silber (1985). It must however be acknowledged that most of these works did not pay too much attention to the definition of the reference group. Studies that belong to the happiness literature gave somehow greater attention to this concept (see, Ferrer-iCarbonell, 2005) but it was only very recently that specific proposals have been made to attempt to define the reference group of individuals (see, Bossert and D'Ambrosio, 2006; Kuegler, 2009; Verme and Izem, 2008, Verme, 2010, van Praag, 2010).

The purpose of the present paper is first to show how ideas that have appeared in the literature on income inequality measurement may be used to define reference groups and derive measures of relative deprivation. Then, using data on individual satisfaction, we try to find out which of these definitions of relative deprivation best fits the 3
 subjective evaluation of one's own satisfaction. Such empirical tests are based on several European panel data that have been gathered in the database called Consortium of Household Panels for European Socio-Economic Research (CHER).

# **II) The Concept of Generalized Gini index and the Measurement of Relative Deprivation**

Assume that<sup>_y_</sup> _i_<sup>is the income of individual</sup><sup>_i_,</sup> _~~y~~_ the average income in the population, _n_ the size of the population, and rank the individuals in such a way that _y_ 1  ...  _yi_  ...  _yn_ . Berrebi and Silber (1985) then showed that the Gini index could be expressed as  where _si_  ( _yi_ / _~~ny~~_ ) is the share of individual _i_ in total income. Note that, following Donaldson and Weymark (1980), (1) may be rewritten as   where  is the "equally distributed equivalent level of income"<sup>2</sup> corresponding to Gini's index.

> 2  See, Atkinson, 1970, for more details on this concept.

4
Donaldson and Weymark (1980) have then extended (2) and defined a "generalized Gini" index _I GG_ as  with  .2 The "equally distributed equivalent level of income" _y E_ , _GG_ corresponding to this "generalized Gini" index is then  Clearly the higher  , the greater the weight given to poorer individuals. If we define the population share of individual _i_ as _fi_  (1/ _n_ ) and note that ( _yi_ / _~~y~~_ )  ( _si_ / _fi_ ), we may rewrite (4) as  where the coefficient<sup>_a_</sup> _i_<sup>is defined as</sup> given that  _f j_  (1/ _n_ )  _j_ .

_n_ Since _a_ 1  _a_ 2  ...  _ai_  ...  _an_ and <sup>_a_</sup> _i_  1, we may express (6) as  _i_  1 5
 Note that in (8) the individuals _i_ are classified by decreasing values of the ratios ( _si_ / _f i_ ) in the same way as in Donaldson and Weymark‟s (1980) original paper individuals were ranked by decreasing incomes. Moreover, given the way<sup>_a_</sup> _i_<sup>was</sup> defined, the smaller the ratio ( _si_ / _f i_ ), the greater the weight<sup>_a_</sup> _i_<sup>which is given to this</sup> ratio.

A more general interpretation may in fact be given to (8). We may consider the set {<sup>_f_</sup> _i_ } of the individual population shares as "a priori probabilities" and the set { _si_ } of the individual incomes shares<sup>_s_</sup> _i_<sup>as "a posteriori probabilities". Expression (8) may then be</sup> used to measure any "distributional change" that occurs when a set of "a priori probabilities"<sup>_f_</sup> _i_<sup>is compared with a set of "a posteriori probabilities"</sup><sup>_s_</sup> _i_<sup>. Silber (1995)</sup> applied this idea to the specific case where the parameter  is equal to 2 (in which case _IGG_ in (4) is equal to the Gini index _I G_ defined in (2) ) to measure distributional change. Deutsch and Silber (2005) extended this approach to derive "normative indices of occupational segregation" while Silber and Weber (2008) used this approach to derive population- and income-weighted Gini related mobility indices.

Expression (8) may therefore be also considered in a certain way as a measure of distributional change, where a comparison is made between the population shares<sup>_f_</sup> _i_ and the income shares<sup>_s_</sup> _i_<sup>of the individuals. It is a population weighted-measure</sup> because the weights<sup>_a_</sup> _i_<sup>depend only on the rank of the individuals in the income</sup> distribution.

6
Let us now apply this idea to the more general case where the set of shares<sup>_f_</sup> _i_ corresponds to the "predicted income share" of individual _i_ (not necessarily his/her population share) and the set of shares<sup>_s_</sup> _i_<sup>, as before, to the actual income share of this</sup> individual. More precisely assume that the income<sup>_y_</sup> _i_<sup>of individual</sup><sup>_i_is a function of a</sup> _X i_ of her personal characteristics (such as age, education,...) and suppose that vector we may express<sup>_y_</sup> _i_<sup>as</sup> where<sup></sup> _i_<sup>includes the effect of unobserved factors on the income of individual</sup> <sup>_i_as well</sup> as the impact of measurement errors.

The "predicted" or "expected" income _y Pi_ of individual _i_ will be defined as where  ˆ and <sup>ˆ</sup> are estimates of   and  .

Equation (10) raises evidently the question of reference groups, that is, of the types of comparisons an individual makes when assessing his/her expected income. Persky and Tam (1990) believe that "an individual is more concerned about the difference between his income and that of his neighbors than the same difference between his income and that of persons far away from him". In other words these authors give a geographic interpretation to reference groups. McBride (2001) takes a broader view of reference groups and argues, on the basis of previous sociological and psychological research, that an individual first makes a comparison which is "sociological and outwardly oriented", looking therefore at the incomes of those who are in his/her cohort, the latter including, for example, people of similar age, gender, race or region. But an individual is also assumed to make an "adaptive, psychological comparison", based on his/her 7
personal consumption experience. Clark and Senik (2009) made a systematic analysis of the types of income comparisons that individuals make by looking at the data of Wave 3 of the European Social Survey. They concluded that self-employed are less likely to compare in general and that employees tend to compare to their colleagues. They also observed that "men compare less to family members than do women. Comparisons to colleagues increase after the age of 25, whereas the opposite is true of comparisons to family members and friends. The married compare more to family members and friends, and individuals with children compare more to family members..." The approach taken in the present paper is somehow more akin to that of Ferrer-iCarbonell (2005) who, in a study of income and well-being, assumed that the individual well-being depends on one's income, on the income of the reference group and on other variables such as age, education, the number of children living in the household, and whether the individual works. Ferrer-i-Carbonell (2005) defined the reference income of an individual as the average income of the reference group, the latter including all the individuals with a similar education level, inside the same age bracket, and living in the same region.

We similarly assumed that the relative deprivation of an individual, which is obviously negatively related to his/her well-being, depends on the comparison of the actual income of the individual with that of his/her reference group, the latter being the income he/she could have expected on the basis of his/her personal characteristics.

Applying expression (8) to such a comparison of predicted and actual income shares could amount in fact to defining a population weighted distributional change measure _D PW_ of relative deprivation with  8
where<sup>_a_</sup> _i_<sup>is defined as previously in (7) while</sup><sup>_s_</sup> _iA_<sup>and</sup><sup>_s_</sup> _iE_<sup>, which in (11) replace the</sup> shares<sup>_s_</sup> _i_<sup>and</sup><sup>_f_</sup> _i_<sup>, refer respectively to the shares of individual</sup><sup>_i_in the total actual and</sup> expected incomes of the society. Given that _E_ (  _i_ )  0, the average incomes _~~y~~_ (average of the actual incomes<sup>_y_</sup> _i_ ) and _~~y~~ P_ (average of the predicted incomes _y Pi_ ) are  identical and hence so are the total values of the actual and expected incomes. We may therefore rewrite (11) as  where the actual incomes<sup>_y_</sup> _i_<sup>as well as the expected incomes</sup> _y Pi_ are ranked by decreasing values of _yi_ / _y Pi_ and where Expression (12) may also be written as where  _yi_  ( _yPi_  _yi_ ).

Borrowing again ideas from Silber (1995) and Silber and Weber (2008), we may also  define an "income weighted deprivation index" _D IW_ with  where the weights<sup>_b_</sup> _i_<sup>are defined as</sup> 9
 and<sup>_y_</sup> _i_<sup>and</sup> _y Pi_ are sorted in decreasing order of _yi_ / _y Pi_ .

> Using (14) we may define a measure<sup>_d_</sup> _i_ , _PW_ of the individual deprivation of individual _i_

as  Such a measure<sup>_d_</sup> _i_ , _PW_ should evidently be considered as a population-weighted measure of relative deprivation.

If one prefers to use an income weighted measure of relative deprivation, one may use (15) and define the measure<sup>_d_</sup> _i_ , _IW_ of the deprivation of individual _i_ as  If in a given survey we have information on the income of an individual and on his/her individual characteristics as well as answers to a question where the individual is asked to say how satisfied he/she is with her income, we can regress the answers given by the individual to the latter question on the relative deprivation measures<sup>_d_</sup> _i_ , _PW_ and<sup>_d_</sup> _i_ , _IW_ that were defined previously and find out which of these two measures of individual deprivation, as well as which value of  give the best fit.

We can also compare the results obtained with those one would get when using other measures of individual deprivation. Yitzhaki (1979) proposed to measure the relative deprivation of individual _i_ via the measure<sup>_d_</sup> _i_ , _Y_<sup>defined as</sup> 10
where it is assumed that _y_ 1  ...  _yi_  ...  _yn_ .

More recently Silber and Verme (2010) defined the relative deprivation <sup>_d_</sup> _i_ , _SV_ of individual _i_ as  where both<sup>_y_</sup> _i_<sup>and</sup> _y Pi_ are ranked by decreasing values of the actual incomes<sup>_y_</sup> _i_<sup>.</sup>

# **III) An Empirical Illustration**

The purpose of this section is to illustrate the use of the deprivation indices proposed and to test whether these indices capture effectively situations of deprivation as perceived by respondents in household surveys. The theoretical and statistical literature on relative deprivation is rich and diverse in terms of measures of deprivation. However, the empirical literature has paid very little attention to verifying whether existing indices capture effectively situations of deprivation as perceived by individuals. Here we can partly fill this gap by using a very comprehensive and little exploited set of European survey data.

The database we use is the Consortium of Household Panels for European Socioeconomic Research (CHER).<sup>3</sup> This is a collection of panel survey data whose variables have been harmonized into a consistent data set. It includes 19 panel studies carried out

> 3 The consortium was established in 2000 and is coordinated by CEPS/INSTEAD in Luxembourg who also holds the rights for the use of the data. For more information on the CHER project see Schmaus et al. (2003).

11
between 1990 and 2001 and totaling over 1.2 millions individual observations. To illustrate the indices proposed in this paper, we picked the longest panels available including the German Socio-Economic Panel (SOEP, 1991-2000), the British Household Panel Survey (BHPS, 1991-2000), the Polish Household Budget Survey (PHBS, 1994-2000) and the Hungarian Household Budget Survey (HHBS, 19921997).<sup>4</sup> Data for Germany were further split into East and West Germany. This is because Germany reunited in 1989 and we expected Eastern and Western Germans to behave differently in relation to feelings of satisfaction and deprivation with income. The subdivision between East and West Germany follows the pre-1989 regional administrative division but it should be considered that many Eastern Germans migrated to West-Germany and, vice-versa, some Western Germans took residency in Eastern regions during the 1990s. Also, Eastern Germans are likely to have followed a process of adaptation to the new social and economic conditions and we should expect the behavior of Eastern regions to converge towards the behavior of Western regions.

The period considered (1991-2000) also coincides with the first decade of transition towards a market economy for East Germany, Poland and Hungary, a period characterized by recessions and deep institutional changes. In essence, our data provide the unique opportunity to observe and compare Western and Eastern European countries during a decade of extraordinary changes that we expected to be associated with significant swings in satisfaction and deprivation.

The variables of interest are income, predicted incomes and satisfaction with income. Income is measured in local currency, net of taxes and contributions and adjusted for inflation using the 2000-based deflators published by the IMF (World Economic Outlook report, October 2009). Predicted income is estimated with an OLS regression

> 4 Note that the time period considered for Poland includes two separate panels, 1994-1996 and 19972000.

12
where the independent variables are sex (female), age (continuous), education (dummies for secondary and tertiary education), married (only formally married) and household size (number of household members). These are the variables we thought relevant for individuals when they compare their own income with the income of others. Evidently, this is a normative choice and these variables may change across countries. We opted for this particular set of variables because we expected this set to be rather standard across countries and because we wanted to use the same set of variables for the five countries considered so as to compare the performance of the indices across countries. Income satisfaction is measured on a scale from one to five as follows: 1) not at all satisfied; 2) somewhat dissatisfied; 3) neutral; 4) somewhat satisfied; 5) completely satisfied.<sup>5</sup> The sample considered is restricted to individuals with positive incomes who replied to the question on income satisfaction. In table 5, we also introduced additional labor market variables (employed and self-employed status) among the explanatory factors of the first-step equation. Location variables such as regional or urban-rural location would be normally important to add. People compare themselves with other people around them. However, the database we have does not have these location variables for all countries and years and we finally preferred to keep all countries/years available.

Our objective is to test whether the individual scores generated by the deprivation indices proposed are able to proxy well individual deprivation feelings as reported by respondents. As we use an income satisfaction variable, we expect to find a negative relation between individual income satisfaction and individual deprivation. In order to assess the correlation between these two variables, we use an ordered logit regression model where the dependent variable is income satisfaction and the independent variable

> 5 Note that questions and answers for the different countries were slightly different in the original surveys. The five steps scale indicated in the text is the one reconstructed by the CHER consortium.

13
is the individual deprivation score of our measures. The empirical equation is simply described as<sup>6</sup> where<sup>_S_</sup> _i_<sup>is the degree of income satisfaction of individual</sup> <sup>_i_with</sup> 1 <sup>_S_</sup> _i_  5 while _Di_ can refer to one of the four individual measures of deprivation defined previously:<sup>_d_</sup> _i_ , _PW_ in expression (17),<sup>_d_</sup> _i_ , _IW_ in expression (18),<sup>_d_</sup> _i_ , _Y_<sup>in expression (19) and</sup><sup>_d_</sup> _i_ , _SV_ in expression (20). The parameters  and  are to be estimated and<sup></sup> _i_<sup>is the error term.</sup> The ordered logit estimations are first carried out for each country and each year across   individuals. We then reduce the sample to panel observations and replicate the equation with the pooled sample using country and year fixed effects and by country using year fixed effects. All estimations use the Huber-White robust estimator.<sup>7</sup> Before we test the indices proposed, it may be instructive to look at the time trends of average income satisfaction of the five countries considered during the 1990s (Figure 1). The UK, which is the country that suffered the least the consequences from the transition from socialism to capitalism of Eastern European countries, shows a rather constant increase in income satisfaction, from a score of 3.3 in 1991 to 3.51 in 2000. West-Germany is the country that shows the highest scores in income satisfaction throughout the period. However, during the first few years of reunification, residents of West-Germany experienced a sharp drop in income satisfaction and only towards the end of the decade values returned closer to the pre-reunification levels. As compared to Western Europe, transition countries including East-Germany show lower average values in income satisfaction. However, it is rather clear that while residents of East

> 6 Conditioning variables such as age and education should not be used in this equation as we are already controlling for these variables in the construction of the deprivation indicator.

> 7 Note that regional clusters could not be used because the regional codes were not available for some countries and years.

14
Germany sharply improved income satisfaction during the 1990s, residents of Poland and Hungary did not. In fact, in both countries, average income satisfaction decreased although we can only observe a shorter period of time as compared to Germany and the UK.

# [Figure 1]

Are changes in subjective income satisfaction reflected in changes in income deprivation as measured by the indices proposed? Results for the parametric estimates are presented in four tables where we show coefficients and significance levels of the individual deprivation scores regressed against income satisfaction for each country and year. In Table 1, we use the _population weighted_ individual deprivation score<sup>_d_</sup> _i_ , _PW_ with values of the parameter  equal to 2 or 3. In Table 2, we use the _income weighted_ individual deprivation score<sup>_d_</sup> _i_ , _IW_ with again values of the parameter  equal to 2 or 3.

In Table 3, we report and compare results with two other deprivation indices, the measure<sup>_d_</sup> _i_ , _Y_<sup>proposed by Yitzhaki (1979) and the measure</sup><sup>_d_</sup> _i_ , _SV_ suggested by Silber and Verme (2010). Finally, in Table 4, which is based on the income weighted deprivation index, we restrict the sample to panel observations and use fixed effects to gather additional insights on cross-country differences and time trends.

The association between perceived income satisfaction and relative deprivation measured with the _population weighted index_ is clearly negative as expected (Table 1). For all countries, with the exception of the UK, coefficients are negative and significant whether we use the inequality aversion parameter alpha equal to two or to three. The z- statistics are fairly large considering that the standard errors are estimated with HuberWhite sandwich estimators. It is also evident that coefficients and significance levels seem to increase as we move from Western to Eastern European countries. Only a few 15
coefficients are significant for the UK and these coefficients are rather low whereas the same coefficients become consistently significant for West-Germany and increasingly so for East-Germany, Poland and Hungary. Considering that West-Germany has also been affected by the transition process due to the reunification process, we could derive that our population weighted index captures well changing feelings of income satisfaction due to deep institutional changes such as the one implied by the transition from socialism to capitalism. This may also explain the low values and significance levels of the coefficients in the UK, the country that has been affected the least by the transition process. In terms of the inequality aversion parameter alpha, we can also argue that a parameter equal to two is better calibrated for capturing changes in income satisfaction than a parameter equal to three.

# [Table 1]

Even better results are obtained when using the _income weighted index_ (Table 2). This index is able to capture well perceived income satisfaction also for the UK, especially with an aversion parameter equal to two. All coefficients in Table 2 are negative and significant and here too we observe that coefficients and significance levels increase as we move from Western to Eastern European countries. There are only three coefficients in the table that are not significant and these are all for the UK when we put alpha equal to three. As for the population weighted index, the income weighted index is better calibrated to capture changes in income satisfaction with an inequality aversion parameter of two rather than three.<sup>8</sup> Unlike the population weighted index, the income weighted index seems to better capture changes in income satisfaction when institutional changes are not so evident.

> 8 Note that the indices proposed are based on incomes that are price adjusted. They are population invariant and consider exactly the same set of variables for predicting income, which implies that they are comparable across countries and years.

16
# [Table 2]

As already mentioned, economics and other disciplines have offered a wide range of indices of relative deprivation, few of which have been used in empirical applications and none of which has been tested to see whether effectively captures sentiments of deprivation. In Table 3, we test the Yitzhaki (1979) relative deprivation index, which is perhaps the most popular relative deprivation index used in economics and the one that originated most of the contributions on the subject. We also test the Silber-Verme (2010) index, which builds on predicted incomes as the generalized indices proposed in this paper.

The Yitzhaki (1979) index performs rather well and better than the population weighted indices of Table 1 but worse than the income weighted indices of Table 2 (Table 3). In three of the ten years considered for the UK, the individual deprivation score is nonsignificant. The Silber-Verme (2010) index of relative deprivation is instead always negative and significant for all years and countries considered and its performance is comparable to the income weighted index when alpha is equal to two. This index, together with the income weighted index of Table 2 is the best performing index in terms of correlation with self-reported income satisfaction. As for the indices presented before, the coefficients of the Yitzhaki and Silber-Verme indices seem to increase as we move from Western to Eastern European countries.

# [Table 3]

As a final test, we reduce the sample to balanced observations and use only the panel components of the surveys. This can be done for the UK, Germany (West and East) and 17
Hungary but not for Poland where we do not have a panel for the full period. We estimated first an ordered logit model on the pooled sample including all the countries but using country and year fixed effects. We then estimated ordered logit models for each country separately with year fixed effects. For this exercise we use only the income weighted index, the index that performed better in the previous applications. Results are presented in Table 4.

The coefficients of the deprivation score are all negative and significant at the 1% level. The pooled sample equation shows that there is a significant difference across countries but does not show any consistent trend across years although the coefficients for years are always negative and significant. Subjective income satisfaction and our relative deprivation measure are always negatively correlated but the strength of this correlation does not show a particular trend over time when countries are considered together.

Time trends become clearer when we discriminate across countries. In Hungary the coefficients of the year are significant only in two years while in the UK these coefficients are significant during the latest period 1997-2000 but not before. Instead in Germany, both East and West, the coefficients of the year are always significant and they tend to increase along the period. These results could be interpreted in terms of speed of institutional changes. In Hungary the process of transition has been rather slow as compared to East Germany while the UK did not experience institutional changes comparable to those occurred in Eastern Europe. Instead, both West and East Germany went through major institutional changes with the process of reunification that resulted in important swings in incomes, in the subjective satisfaction with income and also in the selection of the reference group. The German reunification is likely to have changed the reference group for individuals and one of the key novelties of our relative deprivation measures is precisely the inclusion in these measures of a self-selection mechanism of the reference group.

18
# [Table 4]

Finally, we carry out a few tests to check on the implications of some of the empirical choices made and to check the sensitivity of results.<sup>9</sup> In Table 5, we replicated the model and equations used in Table 1, estimating in addition bootstrapped standard errors (columns 3 and 7), the R squared of the prediction equations of the first-step (columns 4 and 8) and adding to the model labor market variables (employed and selfemployed with non-employed as base category – “Extended model”). Bootstrapped standard errors were estimated replicating 100-times the two-steps model to take into account the variance of both the first and second-step equation.

With a few exceptions, results show that bootstrap estimations of the standard error make little difference to inference in the base model while they make a larger difference in the extended model. The R squared of the first-step equation is also higher as one would expect in the extended model where we added the labor market variables. Inference is evidently affected by the specification of the first-step equation. As the explanatory power of the first-step equation increases, the variance of the predicted values also increases and this is likely to increase the variance of our relative deprivation measures which are constructed with predicted values. As a consequence, the estimation of the coefficients in the second-step equation may benefit from more variance but the true standard error may become more difficult to estimate. Therefore, the key choice of the model proposed is the one of the regressors in the first-step equation. The choice must include those variables that are widely recognized to be those used by people to select their peers (the reference group) and they must be limited to those variables. The objective is not to maximize the R squared of the first-step equation

> 9 We are grateful to two referees for suggesting some of these tests.

19
but to estimate the true distance between actual and expected incomes that best measures the individual sense of deprivation.

# **IV) Concluding Comments**

This paper proposed two new indices of relative deprivation, derived from an extension of the concept of generalized Gini, originally proposed by Donaldson and Weymark (1980), to the measurement of distributional change. The idea was to consider the predicted income share of an individual, obtained from a regression of his income on his personal characteristics, as an "a priori" share and his actual income as an "a posteriori" share. Using such an approach we defined population- as well as income-weighted relative deprivation indices. Using panel data from the Consortium of Household Panels for European Socio-Economic Research (CHER), we then checked which of these various ways of defining individual deprivation best fitted the answers given by individuals on the degree of their satisfaction with income.

We first concluded that the generalized formulation of the deprivation indices studied in this paper performs better when the parameter  is equal to 2 (the case of the traditional Gini index) than when it is equal to 3. A deprivation aversion parameter of „two‟ seems to be better calibrated for capturing self-reported feelings of satisfaction. Then we concluded that the income weighted indices perform better than the population weighted indices. This would suggest that both income and rank are important for people but that absolute incomes are relatively more important than rank. Third we observed that indices that make use of predicted incomes are better than those that use income alone. The Silber-Verme (2010) index seems thus better than the Yitzhaki (1979) index in capturing feelings of deprivation, as already stressed by Silber and 20
 Verme (2010). Fourth we could not observe a time trend in the capacity of all indices to capture self-reported feelings of satisfaction within each country. Instead, we could see a difference for some of the indices in capturing differences between Germany and the UK. This may indicate that all indices studied adapt well to changes in individual behavior within countries while only some indices (the income weighted index with  2 and the Silber-Verme, 2010 index) adapt to cultural or other differences across countries. Finally additional tests of the income weighted index with only panel observations have also shown that this index works well when major institutional changes are at work **.**

# **References**

Atkinson, A. B., 1970, "On the measurement of economic inequality," _Journal of Economic Theory_ , 2 (3): 244-263.

Berrebi, Z. M. and J. Silber, 1985, "Income Inequality Indices and Deprivation: A Generalization," _Quarterly Journal of Economics_ , C: 807-810.

Blanchflower, D. G. and A. J. Oswald, 2004, "Well-being over time in Britain and the United States," _Journal of Public Economics_ , Volume 88(7-8): 1359-1386.

- Bossert, W. and C. D‟Ambrosio, 2006, “Reference Groups and Individual Deprivation”, _Economics Letters_ , 90, 421-426

Clark, A. E. and A. Oswald, 1994, "Unhappiness and Unemployment", 1994, _Economic_

- _Journal_ , 104: 648-659. Reprinted in _The International Library of Critical Writings in Economics: Happiness in Economics_ , R.Easterlin (ed.), Edward Elgar, 2002.

- Clark, A. E. and Oswald, A. J., 1996, “Satisfaction and Comparison Income”, _Journal of Public Economics_ 61: 359-381

- Clark, A. E. and C. Senik, 2009, "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," IZA (Institute for the Study of Labor) Discussion Paper 4414.

21
Deutsch, J. and J. Silber, 2005, “Comparing Segregation by Gender in the Labor Force Across Ten European Countries in the 1990s. An analysis based on the use of normative segregation indices, _International Journal of Manpower_ 26(3): 237264.

- Donaldson, D. and J. A. Weymark, 1980, "A single-parameter generalization of the Gini indices of inequality, Journal of Economic Theory, 22(1): 67-86.

- Duesenberry, J. S., 1949, Income, Saving and the Theory of Consumer Behavior. Cambridge, Mass.: Harvard University Press.

- Ferrer-i-Carbonell, A., 2005, "Income and well-being: an empirical analysis of the comparison income effect," _Journal of Public Economics_ , 89: 997-1019.

- Frank, R. H., 1985, _Choosing the Right Pond: Human Behavior and the Quest for Status._ . New York: Oxford University Press.

- Hey, J. D. and P. J. Lambert, 1980, :Relative Deprivation and the Gini Coefficient: Comment," _Quarterly Journal of Economics_ , XCV: 567-573.

Hirsch, F., 1976, _The Social Limits to Growth_ , Routledge & Kegan Paul, London.

Hopkins, E., 2008, "Inequality, happiness and relative concerns: What actually is their relationship?" _Journal of Economic Inequality_ , 6(4): 351-372

- Kakwani, N.C., 1984, "The Relative Deprivation Curve and its Applications," _Journal of Business and Economic Statistics_ , 2(4): 384-394.

- Kuegler, A., 2009, "A Curse of Comparison? Evidence on Reference Groups for Relative Income Concerns," Policy Research Working Paper 4820, Development Economics Vice-Presidency, The World Bank, Washington.

- McBride, M., 2001, "Relative-incoem effects on subjective well-being in the crosssection," _Journal of Economic Behavior and Organization_ 45:251-278.

- Pedersen, A. W., 2004, "Inequality as Relative Deprivation: A Sociological Approach to Inequality Measurement," _Acta Sociologica_ 47(1): 31-49.

- Persky, J. and Mo-Yin Tam, 1990, "Local Status and National Social Welfare, _Journal of Regional Science_ 30(02): 229-238.

- Rainwater, L., 1974, _What Money Buys: Inequality and the Social Meaning of Income._ New York: Basic Books.

- Rayo, L. and G. S. Becker, 2007, "Habits, Peers, and Happiness: An Evolutionary Perspective _American Economic Review_ , 97(2): 487-91.

- Runciman, W. G., 1966, _Relative Deprivation and Social Justice_ , Routledge and Kegan Paul, London.

22
Samuelson, L., 2004, “Information-Based Relative Consumption Effects,” _Econometrica,_ 72: 93-118.

Schmaus, G., A. Birch, K. Fisher, J. Frick, A. Haag, G. Schaber, B. Kuchler and A. Villeret, 2003, The Cher project. CHER Working paper 1, CEPS/INSTEAD.

- Silber,  J., 1995, “Horizontal  Inequity,  the  Gini  Index,  and  the  Measurement  of Distributional  Change”  in _Income  Distribution, Social  Welfare,  Inequality and Poverty, Research on Economic Inequality_ by C. Dagum and A Lemmi, Eds., **6** : 379-392.

- Silber, J. and M. Weber, 2008, "The Generalized Gini index and the measurement of income mobility," _Economics Bulletin_ 4(9): 1-7.

- Silber, J. and P. Verme, 2010, " Distributional Change, Reference Groups and the Measurement of Relative Deprivation," Chapter 9 in _Research on Economic Inequality_ , Volume 18, _Studies in Applied Welfare Analysis_ , J. Bishop editor, pp. 197-217.

- Stouffer, S.A., E. A. Suchman, L. C. DeVinney, S. A. Star and R. A. Williams, 1949, “ _The American Soldier (1). Adjustment During Army Life_ .” Princeton University Press.

- Van Praag, B. M. S., 2010. "Well-being Inequality and Reference Groups: An Agenda for New Research," Discussion Paper 4727, Institute for the Study of Labor (IZA), Bonn.

- Verme, P., 2010, "Relative Labour Deprivation and Internal Migration in Turkey, _Journal of Economic Inequality_ 8(4): 391-408.

- Verme, P. and Izem, R. (2008) Relative Deprivation with Imperfect Information. _Economics Bulletin_ , Vol. 4, No. 7, pp.1-9

- Yitzhaki, S., 1979, "Relative Deprivation and the Gini Coefficient," _Quarterly Journal of Economics_ , XCIII: 321-324.

- Yitzhaki, S., 1982, "Relative deprivation and economic welfare," _European Economic Review_ , 17(1): 99-113.

23
<!-- Start of picture text --> 4.00<br>3.80 i<br>—— United Kingdom<br>3.00 i =H Germany-West<br>2.80 i. =i Germany-East<br>C —— Poland<br>2.40 — = HungarBary<br>2.20<br>2.00<br>1991 1992 1993 1994 1995 1996 1997 1998 1999 2000<br><!-- End of picture text -->
# **Table 1 – Subjective Income Satisfaction and Population Weighted Deprivation**

|||**Al**|**pha=2**|**Al**|**pha=3**||
|---|---|---|---|---|---|---|
|||Coeff.|z-stat|Coeff.|z-stat|Obs.|
|United Kingdom|1991|-0.158|-0.82|0.027|-0.16|5128|
||1992|0.059|-0.28|0.251|-1.42|4787|
||1993|0.038|-0.21|0.273|-1.85|4590|
||1994<br>|-0.262<br>|(2.25)*<br>|-0.089<br>|-0.8<br>|4656<br>|
||1995|-0.348|-1.6|-0.06|-0.34|4568|
||1996|-0.653|(2.80)**|-0.337|-1.75|4833|
||1997|-0.409|-1.76|-0.135|-0.73|4826|
||1998|-0.151|-0.84|-0.092|-0.75|4821|
||1999|-0.919|(4.02)**|-0.55|(3.04)**|4710|
||2000|-0.304|<br>-1.15|-0.031|<br>-0.14|4613|
|Germany-West|1991|-1.865|(4.97)**|-1.319|(4.28)**|7327|
||1992|-1.692|(4.37)**|-1.192|(3.65)**|7359|
||1993|-1.468|(3.91)**|-0.964|(2.99)**|7229|
||1994|-2.314|(5.88)**|-1.67|(5.19)**|7083|
||1995|-1.889|(4.19)**|-1.366|(3.65)**|7419|
||1996|-1.414|(3.40)**|-0.955|(2.91)**|7348|
||1997|-1.481|(3.90)**|-0.989|(3.20)**|7221|
||1998|-1.686|(4.34)**|-1.114|(3.58)**|8109|
||1999|-1.513|(3.47)**|-1.107|(3.08)**|7820|
||2000|-1.77|(3.54)**|-1.221|(2.90)**|7590|
|Germany-East|1992|-1.886|(7.81)**|-1.455|(7.62)**|3570|
||1993|-2.281|<br>(8.36)**|-1.698|<br>(8.07)**|3396|
||1994|-2.675|(8.98)**|-1.969|(8.09)**|3339|
||1995|-1.827|(6.60)**|-1.197|(5.58)**|3247|
||1996|-1.892|(6.20)**|-1.319|(5.26)**|3218|
||1997|-1.732|<br>(5.38)**|-1.278|<br>(4.81)**|3148|
||1998|-2.15|(7.06)**|-1.481|(6.31)**|3318|
||1999|-2.246|(7.72)**|-1.612|(7.23)**|3260|
||2000|-2.165|(6.17)**|-1.542|(6.08)**|3239|
|Poland|1994|-4.929|(14.08)**|-3.495|(12.84)**|5775|
||1995|-8.474|(19.39)**|-6.058|(18.01)**|8908|
||1996|-7.95|(17.84)**|-5.823|(16.93)**|9084|
||1997|-4.904|(14.62)**|-3.615|(14.11)**|5831|
||1998|-3.973|(12.03)**|-2.896|(11.49)**|5679|
||1999|-4.386|<br>(13.84)**|-3.367|<br>(13.82)**|5695|
||2000|-4.065|<br>(12.66)**|-3.061|<br>(12.44)**|5689|
|Hungary|1992|-4.274|(13.98)**|-3.004|(12.52)**|4609|
||1993|-3.098|(11.76)**|-2.212|(10.77)**|4093|
||1994|-3.175|<br>(13.21)**|-2.445|<br>(12.61)**|3841|
||1995|-3.247|<br>(13.44)**|-2.395|<br>(12.51)**|3393|
||1996|-3.058|<br>(13.55)**|-2.269|<br>(12.91)**|2963|
||1997|-2.292|(10.32)**|-1.749|(9.65)**|2348|

Source: Elaborated from CHER database. Dep. Var. = Income satisfaction. Ordered Logit estimations. (*) significant at 5% level; (**) significant at 1% level.

25
# **Table 2 – Subjective Income Satisfaction and Income Weighted Deprivation**

|||**Al**|**pha=2**|**Al**|**pha=3**||
|---|---|---|---|---|---|---|
|||Coeff.|z-stat|Coeff.|z-stat|Obs.|
|United Kingdom|1991|-1.172|(4.67)**|-0.673|(3.54)**|5128|
||1992|-0.763|(2.82)**|-0.322|-1.56|4787|
||1993|-0.708|(2.73)**|-0.259|-1.31|4590|
||1994<br>|-1.172<br>|(4.57)**<br>|-0.646<br>|(3.28)**<br>|4656<br>|
||1995|-1.104|(4.29)**|-0.585|(3.00)**|4568|
||1996|-1.599|(5.84)**|-0.997|(4.78)**|4833|
||1997|-0.984|(3.69)**|-0.557|(2.74)**|4826|
||1998|-1.232|(4.40)**|-0.727|(3.42)**|4821|
||1999|-1.461|(5.46)**|-0.945|(4.66)**|4710|
||2000|-0.771|<br>(2.74)**|-0.395|<br>-1.85|4613|
|Germany-West|1991|-2.38|(5.55)**|-1.641|(4.95)**|7327|
||1992|-2.185|(5.07)**|-1.389|(4.17)**|7359|
||1993|-2.365|(5.76)**|-1.509|(4.76)**|7229|
||1994|-3.219|(7.24)**|-2.235|(6.48)**|7083|
||1995|-2.625|(5.04)**|-1.758|(4.34)**|7419|
||1996|-2.455|(5.45)**|-1.552|(4.59)**|7348|
||1997|-2.274|(5.43)**|-1.488|(4.74)**|7221|
||1998|-2.713|<br>(5.86)**|-1.745|<br>(5.03)**|8109|
||1999|-2.82|(5.38)**|-1.918|(4.76)**|7820|
||2000|-3.286|(5.23)**|-2.27|(4.66)**|7590|
|Germany-East|1992|-2.167|(7.46)**|-1.466|(6.65)**|3570|
||1993|-2.593|<br>(9.05)**|-1.794|<br>(8.32)**|3396|
||1994|-2.857|(9.16)**|-2.019|(8.27)**|3339|
||1995|-1.884|(6.57)**|-1.263|(5.92)**|3247|
||1996|-1.616|(5.32)**|-1.125|(4.78)**|3218|
||1997|-1.774|<br>(5.68)**|-1.226|<br>(5.00)**|3148|
||1998|-2.097|(6.23)**|-1.478|(5.85)**|3318|
||1999|-2.274|(7.13)**|-1.576|(6.65)**|3260|
||2000|-2.451|(7.44)**|-1.696|(6.90)**|3239|
|Poland|1994|-4.466|(13.95)**|-2.997|(12.52)**|5775|
||1995|-6.91|(17.06)**|-4.686|(15.57)**|8908|
||1996|-6.339|(15.17)**|-4.247|(13.70)**|9084|
||1997|-4.334|(14.49)**|-3.005|(13.64)**|5831|
||1998|-3.346|<br>(11.01)**|-2.232|<br>(9.97)**|5679|
||1999|-3.661|(11.82)**|-2.597|(11.28)**|5695|
||2000|-3.341|<br>(10.78)**|-2.264|<br>(9.78)**|5689|
|Hungary|1992|-2.825|(10.22)**|-1.869|(9.12)**|4609|
||1993|-1.892|(8.50)**|-1.235|(7.48)**|4093|
||1994|-1.861|<br>(8.73)**|-1.244|<br>(7.93)**|3841|
||1995|-1.994|<br>(9.20)**|-1.303|<br>(8.05)**|3393|
||1996|-1.92|<br>(9.04)**|-1.311|<br>(8.25)**|2963|
||1997|-1.037|(4.87)**|-0.651|(4.10)**|2348|

Source: Elaborated from CHER database. Dep. Var. = Income satisfaction. Ordered Logit estimations. (*) significant at 5% level; (**) significant at 1% level.

26
**Table 3 – Subjective Income Satisfaction and Yitzhaki (1979) and Silber-Verme**

# **(2010) Deprivation Indices**

|||**Yitzh**|**aki RD**|**Silber-**|**Verme09**||
|---|---|---|---|---|---|---|
|||Coeff.|z-stat|Coeff.|z-stat|Obs.|
|United Kingdom|1991|-1.271|(2.51)*|-2.74|(4.81)**|5128|
||1992|-0.861|-1.64|-1.886|(3.08)**|4787|
||1993|-0.647|-1.29|-1.969|(3.33)**|4590|
||1994|-1.44|(2.80)**|-3.12|(5.30)**|4656|
||1995|-2.125|(4.13)**|-2.732|(4.66)**|4568|
||1996|-2.358|(4.19)**|-3.93|(6.25)**|4833|
||1997|-1.757|(3.23)**|-2.735|(4.46)**|4826|
||1998|-1.768|(3.01)**|-3.092|(4.74)**|4821|
||1999|-2.381|(4.20)**|-3.797|(6.10)**|4710|
||2000|-1.007|<br>-1.68|-2.266|<br>(3.51)**|4613|
|Germany-West|1991|-7.216|(8.34)**|-5.923|(6.26)**|7327|
||1992|-8.293|(8.96)**|-5.359|(5.60)**|7359|
||1993|-7.384|(8.00)**|-5.571|(6.12)**|7229|
||1994|-8.596|(9.31)**|-7.705|(7.77)**|7083|
||1995|-8.256|(7.58)**|-6.344|(5.40)**|7419|
||1996|-7.185|(7.24)**|-5.746|(5.57)**|7348|
||1997|-6.729|(7.40)**|-5.452|(5.86)**|7221|
||1998|-7.154|(7.49)**|-6.735|(6.55)**|8109|
||1999|-7.453|(6.84)**|-6.479|(5.51)**|7820|
||2000|-7.459|(6.20)**|-7.656|(5.36)**|7590|
|Germany-East|1992|-5.282|(9.24)**|-5.213|(8.15)**|3570|
||1993|-6.132|(10.23)**|-6.363|(9.71)**|3396|
||1994|-6.312|(7.67)**|-7.167|(10.01)**|3339|
||1995|-4.102|(6.36)**|-4.975|(7.64)**|3247|
||1996|-5.304|<br>(7.76)**|-4.361|<br>(6.33)**|3218|
||1997|-5.481|(8.11)**|-4.392|(6.18)**|3148|
||1998|-5.456|(8.10)**|-5.347|(7.22)**|3318|
||1999|-5.359|(7.62)**|-5.473|(7.59)**|3260|
||2000|-6.49|<br>(10.10)**|-5.761|<br>(7.17)**|3239|
|Poland|1994|-18.74|(20.17)**|-10.968|(13.53)**|5775|
||1995|-30.692|(26.30)**|-17.627|(16.93)**|8908|
||1996|-30.652|(26.25)**|-16.569|(15.73)**|9084|
||1997|-17.9|<br>(19.73)**|-10.942|<br>(14.31)**|5831|
||1998|-15.962|(18.24)**|-8.705|(11.24)**|5679|
||1999|-17.032|(19.94)**|-9.628|(12.55)**|5695|
||2000|-17.273|(20.27)**|-8.361|(10.79)**|5689|
|Hungary|1992|-13.993|(18.15)**|-7.82|(10.55)**|4609|
||1993|-10.909|<br>(16.28)**|-5.643|<br>(9.00)**|4093|
||1994|-12.269|<br>(18.46)**|-5.224|<br>(9.02)**|3841|
||1995|-10.856|(17.45)**|-5.47|(9.36)**|3393|
||1996|-10.402|(17.57)**|-5.379|(9.41)**|2963|
||1997|-9.132|<br>(14.93)**|-3.378|<br>(5.63)**|2348|

Source: Elaborated from CHER database. Dep. Var. = Income satisfaction. Ordered Logit estimations. Z- stat in parenthesis. (*) significant at 5% level; (**) significant at 1% level.

27
**Table 4 – Fixed Effects Estimations, Panel Sample**

||**Pooled sample**|**Hungary**|**UK**|**Germany-West**|**Germany-East**|
|---|---|---|---|---|---|
|Deprivation|-0.896***|-0.794***|-0.399***|-1.581***|-1.380***|
||-0.0295|-0.0568|-0.0523|-0.0719|-0.0617|
|United Kingdom|1.458***|||||
||-0.0258|||||
|Germany-West|1.773***|||||
||-0.0232|||||
|Germany-East|0.922***|||||
||-0.0241|||||
|year_1992|-0.233***||0.0889|-0.143***||
||-0.0367||-0.0737|-0.0482||
|year_1993|-0.200***|0.0213|0.00811|-0.263***|0.375***|
||-0.0367|-0.0691|-0.0728|-0.0484|-0.0608|
|year_1994|-0.194***|0.237***|-0.00915|-0.385***|0.451***|
||-0.0367|-0.0691|-0.0729|-0.0483|-0.061|
|year_1995|-0.218***|-0.0716|0.0531|-0.363***|0.482***|
||-0.0366|-0.0683|-0.073|-0.0482|-0.061|
|year_1996|-0.163***|-0.0948|0.0884|-0.286***|0.585***|
||-0.0366|-0.0684|-0.0727|-0.0483|-0.061|
|year_1997|-0.257***|-0.224***|0.188**|-0.444***|0.436***|
||-0.0366|-0.0683|-0.0729|-0.0482|-0.0606|
|year_1998|-0.139***||0.488***|-0.407***|0.438***|
||-0.038||-0.0733|-0.0483|-0.0609|
|year_1999|-0.115***||0.388***|-0.401***|0.597***|
||-0.038||-0.0735|-0.0483|-0.0611|
|year_2000|-0.0427||0.351***|-0.273***|0.659***|
||-0.038||-0.0731|-0.0482|-0.0612|
|Observations|70719|8640|14130|31740|16209|

Source: Elaborated from CHER database. Dep. Var. = Income satisfaction. Panel sample. Ordered Logit estimations. Standard errors under coefficients. (*) significant at 10% level; (**) significant at 5% level; (***) Significant at the 1% level.

28
# **Table 5 - TESTS**

|||**B**|**ase Mod**|**el (Table**|**1)**||**Extende**|**d Model**|||
|---|---|---|---|---|---|---|---|---|---|---|
|||1<br>Coeff.|2<br>s.e.|3<br>bootstr<br>. s.e.|4<br>R2<br>(pred.e<br>q.)|5<br>Coeff.|6<br>s.e.|7<br>bootstr<br>. s.e.|8<br>R2<br>(pred.e<br>q.)|9<br>Obs.|
|United<br>Kingdo|||||||||||
|m|1991|-0.158|0.193|0.206|0.27|-0.139|0.190|0.192|0.28|5128|
||1992|0.059|-0.211|-0.214|0.26|0.055|-0.212|0.226|0.26|4787|
||1993|0.038|-0.181|-0.177|0.26|0.025|-0.179|0.191|0.26|4590|
||1994|-0.262|-0.116|-0.211|0.23|-0.262|-0.116|0.207|0.23|4656|
||1995|-0.348|0.218|0.197|0.21|-0.356|0.218|0.253|0.21|4568|
||1996|-0.653|-0.233|-0.255|0.22|-0.675|-0.234|0.260|0.22|4833|
||1997|-0.409|0.232|0.223|0.2|-0.399|0.232|0.235|0.2|4826|
||1998|-0.151|0.180|0.281|0.17|-0.145|0.175|0.284|0.17|4821|
||1999|-0.919|-0.229|-0.343|0.14|-0.916|-0.228|0.359|0.14|4710|
||2000|-0.304|0.264|0.229|0.19|-0.3|0.265|0.294|0.19|4613|
|Germa|||||||||||
|ny-|||||||||||
|West|1991|-1.865|-0.375|-0.409|0.28|-0.044|0.030|0.067|0.38|7327|
||1992|-1.692|-0.387|-0.364|0.3|0.04|-0.046|0.032|0.42|7359|
||1993|-1.468|-0.375|-0.399|0.3|-0.017|0.012|0.063|0.41|7229|
||1994|-2.314|-0.394|-0.448|0.27|0.031|0.012|0.174|0.38|7083|
||1995|-1.889|-0.451|-0.418|0.25|0.018|-0.022|0.051|0.35|7419|
||1996|-1.414|-0.416|-0.417|0.28|-0.009|0.012|0.150|0.39|7348|
||1997|-1.481|-0.380|-0.388|0.29|-0.016|0.010|0.072|0.42|7221|
||1998|-1.686|-0.388|-0.361|0.26|-0.001|0.001|0.093|0.39|8109|
||1999|-1.513|-0.436|-0.482|0.28|-0.017|0.009|0.044|0.41|7820|
||2000|-1.77|-0.500|-0.519|0.29|0.076|0.028|0.116|0.41|7590|
|Germa<br>|||||||||||
|ny-|||||||||||
|East|1992|-1.886|-0.241|-0.235|0.24|-1.239|-0.263|0.218|0.35|3570|
||1993|-2.281|-0.273|-0.275|0.23|-1.497|-0.294|0.264|0.36|3396|
||1994|-2.675|-0.298|-0.351|0.24|-1.48|-0.330|0.321|0.38|3339|
||1995|-1.827|-0.277|-0.259|0.23|-0.231|0.321|0.293|0.34|3247|
||1996|-1.892|-0.305|-0.315|0.26|-0.914|-0.353|0.350|0.36|3218|
||1997|-1.732|-0.322|-0.314|0.24|-0.804|-0.364|0.418|0.35|3148|
||1998|-2.15|-0.305|-0.280|0.19|-1.529|-0.330|0.354|0.31|3318|
||1999|-2.246|-0.291|-0.281|0.2|-1.086|-0.353|0.425|0.33|3260|
||2000|-2.165|-0.351|-0.355|0.19|-0.041|0.100|0.295|0.29|3239|
|Poland|1994|-4.929|-0.350|-0.378|0.05|-3.085|-0.370|0.745|0.16|5775|
||1995|-8.474|-0.437|-0.531|0.04|-3.538|-0.454|1.401|0.13|8908|
||1996|-7.95|-0.446|-0.464|0.11|-4.052|-0.476|0.660|0.26|9084|
||1997|-4.904|-0.335|-0.478|0.06|-2.873|-0.391|0.983|0.17|5831|
||1998|-3.973|-0.330|-0.389|0.1|-2.666|-0.346|0.532|0.22|5679|
||1999|-4.386|-0.317|-0.335|0.09|-2.57|-0.381|1.044|0.2|5695|
||<br>2000|<br>-4.065|<br>-0.321|<br>-0.422|<br>0.08|<br>-2.576|<br>-0.316|<br>0.741|<br>0.19|<br>5689|
|Hunga|||||||||||
|ry|1992|-4.274|-0.306|-0.327|0.21|-0.898|-0.273|0.464|0.3|4609|
||1993|-3.098|-0.263|-0.263|0.24|-0.183|0.189|0.386|0.31|4093|
||1994|-3.175|-0.240|-0.284|0.15|0.006|-0.004|0.065|0.21|3841|
||1995|-3.247|-0.242|-0.283|0.22|-0.015|-0.006|0.139|0.31|3393|
||1996|-3058|-0226|-0246|015|-0509|-0237|0429|024|2963|
||<br>1997|.<br>-2.292|.<br>-0.222|.<br>-0.284|.<br>0.09|.<br>-0.103|.<br>0.054|.<br>0.212|.<br>0.14|<br>2348|

29