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

World Bank Policy Research Working Paper No. 9456

33 Pages Posted: 2 Dec 2020

See all articles by Maurizio Bussolo

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia

Mathilde Sylvie Maria Lebrand

World Bank

Iván Torre

World Bank

Date Written: October 27, 2020

Abstract

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 fulltime secure types of employment.

Keywords: Inequalities, subjective ranking, well-being

JEL Classification: D31, C25, D3, I31

Suggested Citation

Bussolo, Maurizio and Lebrand, Mathilde Sylvie Maria and Torre, Ivan, Feeling Poor, Feeling Rich, or Feeling Middle-Class: An Empirical Investigation (October 27, 2020). World Bank Policy Research Working Paper No. 9456, Available at SSRN: https://ssrn.com/abstract=3720334 or http://dx.doi.org/10.2139/ssrn.3720334

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://https://blogs.worldbank.org/team/maurizio-bussolo

Mathilde Sylvie Maria Lebrand

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Ivan Torre (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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