Chapter 9 Distributional change, reference groups, and the measurement of relative deprivation

This chapter attempts to explicitly integrate the idea of reference group when measuring relative deprivation. It assumes that in assessing his situation in society an individual compares himself with individuals whose environment can be considered as being similar to his. 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 that covered a period of six years (from 2000 to 2005). We then observed that our measure of deprivation is well suited to study wage deprivation across genders and is able to proxy subjective deprivation in living standards reported by survey respondents better than conventional measures of relative deprivation.