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Identifying welfare effects from subjective questions

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  • Ravallion, Martin
  • Lokshin, Michael

Abstract

The authors argue that the welfare inferences drawn from subjective answers to questions on qualitative surveys are clouded by concerns about the structure of measurement errors and how latent psychological factors influence observed respondent characteristics. They propose a panel data model to high-quality panel data for Russia for 1994-96, they find that some results widely reported in past studies of subjective well-being appear to be robust but others do not. Household income, for example, is a highly significant predictor of self-rated economic welfare; per capita income is a weaker predictor. Ill health and loss of a job reduce self-reported economic welfare; per capita income is a weaker predictor. Ill health and loss of a job reduce self-reported economic welfare, but demographic effects are weak at a given current income. And the effects of unemployment is not robust. Returning to work does not restore a sense of welfare unless there is an income gain. The results imply that even transient unemployment brings the feeling of a permanent welfare loss, suggesting that high unemployment benefits do not attract people out of work but do discourage a return to work.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2301.

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Date of creation: 31 Mar 2000
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Handle: RePEc:wbk:wbrwps:2301

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Keywords: Economic Theory&Research; Services&Transfers to Poor; Public Health Promotion; Environmental Economics&Policies; Labor Policies; Safety Nets and Transfers; Economic Theory&Research; Environmental Economics&Policies; Inequality; Governance Indicators;

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  1. Blanchflower, D.G. & Oswald, A.J., 1997. "A Study of Labour Markets and Youth Unemployment in Eastern Europe," The Warwick Economics Research Paper Series (TWERPS) 499, University of Warwick, Department of Economics.
  2. Rose, Richard & McAllister, Ian, 1996. "Is Money the Measure of Welfare in Russia?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(1), pages 75-90, March.
  3. Kapteyn, A.J. & Kooreman, P. & Willemse, R., 1987. "Some methodological issues in the implementation of subjective poverty definitions," Research Memorandum 245, Tilburg University, Faculty of Economics and Business Administration.
  4. Kapteyn, A.J., 1994. "The measurement of household cost functions: Revealed preference versus subjective measures," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364386, Tilburg University.
  5. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
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  7. Seidl, Christian, 1994. "How sensible is the Leyden individual welfare function of income?," European Economic Review, Elsevier, vol. 38(8), pages 1633-1659, October.
  8. Pradhan, Menno & Ravallion, Martin, 1998. "Measuring poverty using qualitative perceptions of welfare," Policy Research Working Paper Series 2011, The World Bank.
  9. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
  10. Lanjouw, Peter & Ravallion, Martin, 1995. "Poverty and Household Size," Economic Journal, Royal Economic Society, vol. 105(433), pages 1415-34, November.
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  12. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  14. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  15. William A. Darity & Arthur H. Goldsmith, 1996. "Social Psychology, Unemployment and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 121-140, Winter.
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