Distributional change, reference groups and the measurement of relative deprivation

Working Paper 2009-136

Abstract

This paper attempts to explicitly integrate the idea of reference group when measuring relative deprivation. It assumes that in assessing her situation in society an individual compares herself with individuals whose environment can be considered as being similar to hers. By environment we mean the set of people with a similar set of observable characteristics such as human capital, household attributes and location. We therefore propose to measure relative deprivation by comparing the actual income of an individual with the one he could have expected on the basis of the level of these characteristics. We then aggregate these individual comparisons by computing an index of "distributional change" that compares, on a non anonymous basis, the distributions of the actual and "expected" incomes. At the difference of other approaches to relative deprivation our measure takes into account not only the difference between the actual and "expected" individual incomes but also that between the actual and "expected" individual ranks. We applied our approach to Moldova, the poorest country in Europe, using a survey which covered a period of six years (from 2000 to 2005). We then observed that our measure of deprivation, when compared to other possible measures of deprivation, had a higher correlation with the answers given by individuals in the survey we used to a question on their assessment of their housing living conditions (a higher number corresponding to a worse subjective situation).

Authors: Jacques Silber, Paolo Verme .