Description
Project 1b will analyse income inequality over the lifecycle and across generations. But, as stressed in the capability approach developed by Amartya Sen (1993), to measure genuine inequality in living standards, we must also take into account individuals’ ability to convert resources to valuable actions and well-being. Psychologists distinguish two distinct aspects of subjective well-being: evaluation of life and emotional well-being. Evaluation of life describes how people assess their own lives, and this is the measure of subjective well-being that surveys have traditionally focused on, whereas emotional well-being refers to the emotional quality of an individual’s life experience. Using cross-sectional data, Kahneman and Deaton (2010) have shown that in the US, evaluation of life increases approximately log-linearly with incomes, but emotional well-being increases only up to a satiation point. With global data, Wolfers and Stevenson (2013) show that the relationship between log-incomes and evaluation of life is linear, but note that emotional well-being is a different dimension of subjective well-being and might have a different relationship with covariates. Diener et al (2010) find only a modest association between income and emotional well-being, and no evidence of a satiation point, but this may reflect shortcomings of the data. Using the EU SILC dataset and its 2013 module on well-being we will investigate NORFACE Welfare State Futures Application whether there is a satiation point in the relationship between emotional well-being and income also in Europe. We will also study these relationships at the country level. Furthermore, we also examine whether there is a satiation point in life evaluation in Europe, unlike in the US.
With its large sample size, the EU SILC allows us to study the relationships up to a high level of income with a high level of accuracy, especially since the income indicators present in the data are very good compared to previous studies. The data also cover more than 30 European countries. Compared to the data used by Kahneman and Deaton (2010), EU SILC offers higher quality measures of income and also measurs of both aspects of subjective well-being. Assuming there’s a relationship between income and emotional well-being, we ask whether well-being is more affected by absolute or relative poverty. Is it the fulfilment of basic needs such as the need for food that underlies the association between income and well-being? In order to do this, we will construct a multidimensional poverty measure (see e.g. Alkire and Foster 2011, Whelan et al 2012) via regression analysis of emotional well-being on measures of poverty using the uniquely detailed EU SILC data on household characteristics and living standards. Using the poverty measure in conjunction with incomes to explain low emotional well-being, we aim to disentangle the effects of each. The estimated relationships would also be one approach to approximate the effect of functioning on well-being in Amartya Sen’s capability theory (see e.g. Anand et al 2009 for one approach). We will also examine the effect of fulfilment of physical and psychological needs, as well as the fulfilment of material aspirations.
Finally, we will characterize institutions’ ability to help in converting resources to valuable actions and well-being at the macro level and study how institutions affect the relationship between income and emotional well-being. Do, for example, certain institutional setups reduce the importance of income in emotional well-being? More specifically, we would contrast the estimated relationship between multidimensional poverty and low emotional well-being with data on tax rates, tax progressivity, and spending on public services at the national or regional level.
Researchers
Mr Ohto Kanninen, Senior Researcher, University of Tampere, ohto.kanninen@labour.fi
Mr Esa Palosaari, PhD student, esa.palosaari@gmail.com