why the middle class invests in its future: an empirical test of the ‘peace of mind’ narrative...
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Why the Middle Class Invests in its Future: An Empirical Test of the ‘Peace of Mind’ Narrative
in Middle Income Countries
Rick Mourits&
Luuk van Kempen
EADI conferenceBonn – June 24, 2014
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The ‘Peace of Mind’ narrative (I)
1. Calvo (2008); risk of falling (back) into poverty is “ever-present, oppressing source of stress” for
those just above the poverty line → middle class sufficiently ‘distant’ from poverty line to enjoy
“peace of mind”
2. Banerjee & Duflo (2008; 2011):
“nothing seems more middle class than the fact of having a steady well-paying job”
Job security is crucial in order to avoid being consumed by “existential stress”
Complex survival-oriented tactics imply a drain on mental energy for investment in future
(self) → weak “navigational capacity” (cf. Appadurai, 2004)
3. Psychology of scarcity (Mullainathan & Shafir, 2013; Mani, Mullainathan, Shafir & Zhao, 2013; Haushofer & Fehr, 2014)
Scarcity of money leads to i) cognitive overload, and ii) attentional capture
Lack of “mental bandwith” today compounds tomorrow’s scarcity problem
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The ‘Peace of Mind’ narrative (II)
Evidence on supposed inhibition to invest in one’s future, as a consequence of deleterious psychological mechanisms triggered by (near-)poverty, is mostly anecdotal or micro in scope
Our ambition: a broader test whether job (and thus income) security indeed frees up ‘mental space’ to invest in oneself, using cross-country evidence
Objective: Contribute to our understanding of what sets the middle class apart from the poor and investigate whether there are self-reinforcing dynamics at play
Focus on MICs / emerging economies
Method: structural equation model (and multilevel regression analysis)
Question: Are the data compatible with the ‘peace of mind’ narrative?
What type of investment?
Cultural capital; not instrumental in ‘making ends meet’
Human capital investment may pay off even in short or medium run
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‘Peace of Mind’ pathway into middle class
EDUCATION
JOB SECURITY
PEACE OF MIND
INVESTMENT IN
CULTURAL CAPITAL
INCOME ASSETS/WEALTH
jjjjj
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Testing the ‘Peace of Mind’ narrative World Value Survey, 5th wave (2005-2008)
• 23 middle-income countries (lower cutoff: $1,250 GNI p.c.; upper cutoff: $12,500 GNI p.c.) → 37,150 households
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Operationalisation of ‘PoM’ pathway into middle class
EDUCATION
JOB SECURITY
PEACE OF MIND
INVESTMENT IN
CULTURAL CAPITAL
INCOME ASSETS/WEALTH
jjjjj
EDUCATION ON ISCED
SCALE
JOB SKILL ON ISCO
SCALE
ESTIMATED
INCOME
LAST YEAR’S SAVINGS
SENSE OF CONTROL
• NEWS CONSUMPTION
• INTEREST IN POLITICS
• IMPORTANCE TERTIARY EDUCATION (GIRL-TO-BOY)
• MEMBERSHIP IN ARTISTIC/ CULTURAL ORGANIZATION
PERSONAL RESOURCE THAT ABSORBS THE IMPACT OF
NEGATIVE SHOCKS ON MENTAL HEALTH (BUFFER AGAINST STRESS)
(THOITS, 1995; YOUNG 2001; LEVER, PIÑOL & URALDE, 2005)
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Structural Equation Modeling
Structural Equation Modeling, also SEM, is like regression analysis: it estimates the linear effects of independent variables on Y.
However, it can do more!- Test whether models fit the data
SEM tests whether a restricted model has less explanatory power than a fullmodel, i.e., whether certain paths (relations) are redundant.
Full Restricted
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Results – working respondents
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Results – all respondents
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Conclusion
Overall, ‘peace of mind’ narrative fits data reasonably well, but a number of additional relations improve fit:
‘Peace of mind’ also predicted by relative income, not only by education/job skills
Cultural capital investment also directly predicted by education/job skills, not only through ‘peace of mind’
Analysis suggests that ‘sense of control’ and cultural capital are class-dependent
However, analysis based on rather crude proxies → need for better data, especially on mental health
If narrative holds true, interesting implications for development interventions:
Benefits of interventions that would assist households in ‘navigating’ the future (e.g. trainings on business planning, financial management etc.)
‘Costs’ of complex interventions that further increase cognitive load on participants